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) July 18, 2019

 

 

Microsoft Corporation

 

 

 

Washington   001-37845   91-1144442

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

One Microsoft Way, Redmond, Washington   98052-6399

(425) 882-8080

www.microsoft.com/investor

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))

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

 

Title of each class

  

Trading Symbol

  

Name of exchange on which registered

COMMON STOCK, $0.00000625 par value per share    MSFT    NASDAQ
2.125% Notes due 2021   

MSFT

   New York Stock Exchange
3.125% Notes due 2028   

MSFT

   New York Stock Exchange
2.625% Notes due 2033   

MSFT

   New York Stock Exchange

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 2.02. Results of Operations and Financial Condition

On July 18, 2019, Microsoft Corporation issued a press release announcing its financial results for the fiscal quarter and year ended June 30, 2019. 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:

 


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: July 18, 2019

 

/ S / F RANK H. B ROD

  Frank H. Brod
 

Corporate Vice President, Finance and

Administration;

Chief Accounting Officer

 

Exhibit 99.1

Microsoft Cloud Powers Record Fourth Quarter Results

REDMOND, Wash. — July  18, 2019 — Microsoft Corp. today announced the following results for the quarter ended June 30, 2019, as compared to the corresponding period of last fiscal year:

 

   

Revenue was $33.7 billion and increased 12%

   

Operating income was $12.4 billion and increased 20%

   

Net income was $13.2 billion GAAP and $10.6 billion non-GAAP, and increased 49% and 21%, respectively

   

Diluted earnings per share was $1.71 GAAP and $1.37 non-GAAP, and increased 50% and 21%, respectively

   

GAAP results include a $2.6 billion net income tax benefit explained in the Non-GAAP Definition section below

“It was a record fiscal year for Microsoft, a result of our deep partnerships with leading companies in every industry,” said Satya Nadella, chief executive officer of Microsoft. “Every day we work alongside our customers to help them build their own digital capability — innovating with them, creating new businesses with them, and earning their trust. This commitment to our customers’ success is resulting in larger, multi-year commercial cloud agreements and growing momentum across every layer of our technology stack.”

The following table reconciles our financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. Additional information regarding our non-GAAP definition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.

 

     

Three Months Ended June 30,

 

 

   ($ in millions, except per share amounts)

 

  

  Revenue  

 

    

  Operating  
  Income  

 

    

  Net Income  

 

    

  Diluted  
  Earnings per  
  Share  

 

 

  2018 As Reported (GAAP)

  

 

$30,085

 

  

 

$10,379

 

  

 

$8,873

 

  

 

$1.14

 

  Net Impact of the Tax Cuts and Jobs Act (TCJA)

  

 

-

 

  

 

-

 

  

 

(104)

 

  

 

(0.01)

 

  2018 As Adjusted (non-GAAP)

  

 

$30,085

 

  

 

$10,379

 

  

 

$8,769

 

  

 

$1.13

 

  2019 As Reported (GAAP)

  

 

$33,717

 

  

 

$12,405

 

  

 

$13,187

 

  

 

$1.71

 

  Net Tax Impact of Transfer of Intangible Properties

  

 

-

 

  

 

-

 

  

 

(2,567)

 

  

 

(0.34)

 

  2019 As Adjusted (non-GAAP)

  

 

$33,717

 

  

 

$12,405

 

  

 

$10,620

 

  

 

$1.37

 

  Percentage Change Y/Y (GAAP)

  

 

12%

 

  

 

20%

 

  

 

49%

 

  

 

50%

 

  Percentage Change Y/Y (non-GAAP)

  

 

12%

 

  

 

20%

 

  

 

21%

 

  

 

21%

 

  Percentage Change Y/Y (non-GAAP) Constant Currency

  

 

14%

 

  

 

24%

 

  

 

24%

 

  

 

24%

 

The current quarter effective tax rate was (5)% and 16% on a GAAP and non-GAAP basis, respectively. GAAP results include a net income tax benefit of $2.6 billion for the fourth quarter of fiscal year 2019 and a net income tax benefit of $104 million for the fourth quarter of fiscal year 2018. These net tax benefits are excluded from our non-GAAP results and explained in the Non-GAAP Definition section below.


Microsoft returned $7.7 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2019.

“Q4 commercial cloud revenue increased 39% year-over-year to $11.0 billion, driving our strongest commercial quarter ever,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Revenue in Productivity and Business Processes was $11.0 billion and increased 14% (up 17% in constant currency), with the following business highlights:

 

   

Office Commercial products and cloud services revenue increased 14% (up 16% in constant currency) driven by Office 365 Commercial revenue growth of 31% (up 34% in constant currency)

   

Office Consumer products and cloud services revenue increased 6% (up 8% in constant currency) and Office 365 Consumer subscribers increased to 34.8 million

   

LinkedIn revenue increased 25% (up 28% in constant currency) with record levels of engagement highlighted by LinkedIn sessions growth of 22%

   

Dynamics products and cloud services revenue increased 12% (up 15% in constant currency) driven by Dynamics 365 revenue growth of 45% (up 48% in constant currency)

Revenue in Intelligent Cloud was $11.4 billion and increased 19% (up 21% in constant currency), with the following business highlights:

 

   

Server products and cloud services revenue increased 22% (up 24% in constant currency) driven by Azure revenue growth of 64% (up 68% in constant currency)

   

Enterprise Services revenue increased 4% (up 6% in constant currency)

Revenue in More Personal Computing was $11.3 billion and increased 4% (up 6% in constant currency), with the following business highlights:

 

   

Windows OEM revenue increased 9% (up 9% in constant currency)

   

Windows Commercial products and cloud services revenue increased 13% (up 16% in constant currency)

   

Surface revenue increased 14% (up 17% in constant currency)

   

Search advertising revenue excluding traffic acquisition costs increased 9% (up 10% in constant currency)

   

Gaming revenue declined 10% (down 8% in constant currency) with Xbox software and services revenue down 3% (down 1% in constant currency)

Fiscal Year 2019 Results

Microsoft Corp. today announced the following results for the fiscal year ended June 30, 2019, as compared to the corresponding period of last fiscal year:

 

   

Revenue was $125.8 billion and increased 14%

   

Operating income was $43.0 billion and increased 23%


   

Net income was $39.2 billion GAAP and $36.8 billion non-GAAP, and increased 137% and 22%, respectively

   

Diluted earnings per share was $5.06 GAAP and $4.75 non-GAAP, and increased 138% and 22%, respectively

   

GAAP results include a $2.6 billion net income tax benefit explained in the Non-GAAP Definition section below

The following table reconciles our financial results reported in accordance with GAAP to non-GAAP financial results. Additional information regarding our non-GAAP definition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.

 

     

Twelve Months Ended June 30,

 

 

   ($ in millions, except per share amounts)

 

  

  Revenue  

 

    

  Operating  
  Income  

 

    

  Net Income  

 

    

  Diluted  
  Earnings per  
  Share  

 

 

  2018 As Reported (GAAP)

  

 

$110,360

 

  

 

$35,058

 

  

 

$16,571

 

  

 

$2.13

 

  Net Impact of the TCJA

  

 

-

 

  

 

-

 

  

 

13,696

 

  

 

1.75

 

  2018 As Adjusted (non-GAAP)

  

 

$110,360

 

  

 

$35,058

 

  

 

$30,267

 

  

 

$3.88

 

  2019 As Reported (GAAP)

  

 

$125,843

 

  

 

$42,959

 

  

 

$39,240

 

  

 

$5.06

 

  Net Tax Impact of Transfer of Intangible Properties

  

 

-

 

  

 

-

 

  

 

(2,567)

 

  

 

(0.33)

 

  Net Impact of the TCJA

  

 

-

 

  

 

-

 

  

 

157

 

  

 

0.02

 

  2019 As Adjusted (non-GAAP)

  

 

$125,843

 

  

 

$42,959

 

  

 

$36,830

 

  

 

$4.75

 

  Percentage Change Y/Y (GAAP)

  

 

14%

 

  

 

23%

 

  

 

137%

 

  

 

138%

 

  Percentage Change Y/Y (non-GAAP)

  

 

14%

 

  

 

23%

 

  

 

22%

 

  

 

22%

 

  Percentage Change Y/Y (non-GAAP) Constant Currency

  

 

15%

 

  

 

24%

 

  

 

22%

 

  

 

23%

 

The current year effective tax rate was 10% and 16% on a GAAP and non-GAAP basis, respectively. GAAP results include a net income tax benefit of $2.6 billion and a net income tax charge of $157 million for the twelve months ended June 30, 2019. GAAP results include a net income tax charge of $13.7 billion for the twelve months ended June 30, 2018. These net tax impacts are excluded from our non-GAAP results and explained in the Non-GAAP Definition section below .

Business Outlook

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

Quarterly Highlights, Product Releases, and Enhancements

Every quarter Microsoft delivers hundreds of products, either as new releases, services, or enhancements to current products and services. These releases are a result of significant research and development investments, made over multiple years, designed to help customers be more productive and secure and to deliver differentiated value across the cloud and the edge.


Here are the major product releases and other highlights for the quarter, organized by product categories, to help illustrate how we are accelerating innovation across our businesses while expanding our market opportunities.

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, Keith Dolliver, deputy general counsel, and Michael Spencer, general manager of investor relations, will host a conference call and webcast at 2:30 p.m. Pacific time (5:30 p.m. Eastern time) 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/en-us/investor . The webcast will be available for replay through the close of business on July 18, 2020.

Non-GAAP Definition

Transfer of Intangible Properties . In the fourth quarter of fiscal year 2019, in response to the TCJA and recently issued regulations, we transferred certain intangible properties held by our foreign subsidiaries to the United States and Ireland. The transfers of intangible properties resulted in a net $2.6 billion tax benefit recorded in the fourth quarter of fiscal year 2019, as the value of future tax deductions exceeded the current tax liability from foreign jurisdictions and United States Global Intangible Low-Taxed Income (GILTI) tax.

The TCJA Impact . We recorded a net charge of $157 million during the twelve months ended June 30, 2019 related to the TCJA. We recorded a net benefit of $104 million during the three months ended June 30, 2018 and a net charge of $13.7 billion during the twelve months ended June 30, 2018 related to the TCJA.

We have provided non-GAAP financial measures related to the transfer of intangible properties and the TCJA to aid investors in better understanding our performance. We believe these non-GAAP measures assist investors by providing additional insight into our operational performance and help clarify trends affecting our business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Constant Currency

Microsoft presents constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Microsoft has provided this non-GAAP financial information to aid investors in better understanding our performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.


Financial Performance Constant Currency Reconciliation

 

     

Three Months Ended June 30,

 

 

   ($ in millions, except per share amounts)

 

  

  Revenue  

 

    

  Operating  
  Income  

 

    

  Net Income  

 

    

  Diluted  
  Earnings per  
  Share  

 

 

  2018 As Reported (GAAP)

  

 

$30,085

 

  

 

$10,379

 

  

 

$8,873

 

  

 

$1.14

 

  2018 As Adjusted (non-GAAP)

  

 

$30,085

 

  

 

$10,379

 

  

 

$8,769

 

  

 

$1.13

 

  2019 As Reported

  

 

$33,717

 

  

 

$12,405

 

  

 

$13,187

 

  

 

$1.71

 

  2019 As Adjusted (non-GAAP)

  

 

$33,717

 

  

 

$12,405

 

  

 

$10,620

 

  

 

$1.37

 

  Percentage Change Y/Y (GAAP)

  

 

12%

 

  

 

20%

 

  

 

49%

 

  

 

50%

 

  Percentage Change Y/Y (non-GAAP)

  

 

12%

 

  

 

20%

 

  

 

21%

 

  

 

21%

 

  Constant Currency Impact

  

 

$(639)

 

  

 

$(444)

 

  

 

$(250)

 

  

 

$(0.03)

 

  Percentage Change Y/Y (non-GAAP) Constant Currency

  

 

14%

 

  

 

24%

 

  

 

24%

 

  

 

24%

 

 

     

Twelve Months Ended June 30,

 

 

   ($ in millions, except per share amounts)

 

  

  Revenue  

 

    

  Operating  
  Income  

 

    

  Net Income  

 

    

  Diluted  
  Earnings per  
  Share  

 

 

  2018 As Reported (GAAP)

  

 

$110,360

 

  

 

$35,058

 

  

 

$16,571

 

  

 

$2.13

 

  2018 As Adjusted (non-GAAP)

  

 

$110,360

 

  

 

$35,058

 

  

 

$30,267

 

  

 

$3.88

 

  2019 As Reported

  

 

$125,843

 

  

 

$42,959

 

  

 

$39,240

 

  

 

$5.06

 

  2019 As Adjusted (non-GAAP)

  

 

$125,843

 

  

 

$42,959

 

  

 

$36,830

 

  

 

$4.75

 

  Percentage Change Y/Y (GAAP)

  

 

14%

 

  

 

23%

 

  

 

137%

 

  

 

138%

 

  Percentage Change Y/Y (non-GAAP)

  

 

14%

 

  

 

23%

 

  

 

22%

 

  

 

22%

 

  Constant Currency Impact

  

 

$(1,116)

 

  

 

$(505)

 

  

 

$(147)

 

  

 

$(0.02)

 

  Percentage Change Y/Y (non-GAAP) Constant Currency

  

 

15%

 

  

 

24%

 

  

 

22%

 

  

 

23%

 

Segment Revenue Constant Currency Reconciliation

 

     

Three Months Ended June 30,

 

 

   ($ in millions)

 

  

Productivity and
Business Processes

 

    

Intelligent Cloud

 

    

More Personal
      Computing      

 

 

  2018 As Reported

  

 

$9,668

 

  

 

$9,606

 

  

 

$10,811

 

  2019 As Reported

  

 

$11,047

 

  

 

$11,391

 

  

 

$11,279

 

  Percentage Change Y/Y

  

 

14%

 

  

 

19%

 

  

 

4%

 

  Constant Currency Impact

  

 

$(249)

 

  

 

$(229)

 

  

 

$(161)

 

  Percentage Change Y/Y Constant Currency

  

 

17%

 

  

 

21%

 

  

 

6%

 


Selected Product and Service Revenue Constant Currency Reconciliation

 

     

Three Months Ended June 30, 2019

 

 
     

Percentage Change

Y/Y (GAAP)

 

    

Constant Currency
Impact

 

    

Percentage Change
Y/Y Constant
Currency

 

 

  Office Commercial products and cloud services

  

 

14%

 

  

 

2%

 

  

 

16%

 

  Office 365 Commercial

  

 

31%

 

  

 

3%

 

  

 

34%

 

  Office Consumer products and cloud services

  

 

6%

 

  

 

2%

 

  

 

8%

 

  LinkedIn

  

 

25%

 

  

 

3%

 

  

 

28%

 

  Dynamics products and cloud services

  

 

12%

 

  

 

3%

 

  

 

15%

 

  Dynamics 365

  

 

45%

 

  

 

3%

 

  

 

48%

 

  Server products and cloud services

  

 

22%

 

  

 

2%

 

  

 

24%

 

  Azure

  

 

64%

 

  

 

4%

 

  

 

68%

 

  Enterprise Services

  

 

4%

 

  

 

2%

 

  

 

6%

 

  Windows OEM

  

 

9%

 

  

 

0%

 

  

 

9%

 

  Windows Commercial products and cloud services

  

 

13%

 

  

 

3%

 

  

 

16%

 

  Search advertising excluding traffic acquisition costs

  

 

9%

 

  

 

1%

 

  

 

10%

 

  Surface

  

 

14%

 

  

 

3%

 

  

 

17%

 

  Gaming

  

 

(10)%

 

  

 

2%

 

  

 

(8)%

 

  Xbox software and services

  

 

(3)%

 

  

 

2%

 

  

 

(1)%

 

About Microsoft

Microsoft (Nasdaq “MSFT” @microsoft) enables digital transformation for the era of an intelligent cloud and an intelligent edge. Its mission is to empower every person and every organization on the planet to achieve more.

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 our markets that may lead to lower revenue or operating margins;

 

   

increasing focus on cloud-based services presenting execution and competitive risks;

 

   

significant investments in products and services that may not achieve expected returns;

 

   

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

 

   

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

 

   

cyberattacks and security vulnerabilities that could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position;


   

disclosure and misuse of personal data that could cause liability and harm to our reputation;

 

   

the possibility that we may not be able to protect information stored in our products and services from use by others;

 

   

abuse of our advertising or social platforms that may harm our reputation or user engagement;

 

   

the development of the internet of things presenting security, privacy, and execution risks;

 

   

issues about the use of artificial intelligence in our offerings that may result in competitive harm, legal liability, or reputational harm; and

 

   

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

 

   

quality or supply problems;

 

   

the possibility that we may fail to protect our source code;

 

   

legal changes, our evolving business model, piracy, and other factors may decrease the value of our intellectual property;

 

   

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

 

   

claims against us that may result in adverse outcomes in legal disputes;

 

   

government litigation and regulatory activity relating to competition rules that may limit how we design and market our products;

 

   

potential liability under trade protection, anti-corruption, and other laws resulting from our global operations;

 

   

laws and regulations relating to the handling of personal data that may impede the adoption of our services or result in increased costs, legal claims, fines, or reputational damage;

 

   

additional tax liabilities;

 

   

damage to our reputation or our brands that may harm our business and operating results.

 

   

exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange;

 

   

adverse economic or market conditions that may harm our business;

 

   

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

 

   

the dependence of our business on our ability to attract and retain talented employees; and


   

changes in our sales organization that may impact revenues.

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/en-us/investor.

All information in this release is as of June 30, 2019. 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:

Microsoft Media Relations, WE Communications for Microsoft, (425) 638-7777, rrt@we-worldwide.com

For more information, financial analysts and investors only:

Michael Spencer, 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. Pacific time conference call with investors and analysts, is available at http://www.microsoft.com/en-us/investor .


MICROSOFT CORPORATION    

INCOME STATEMENTS

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

 

    

Three Months Ended

June 30,

    

Twelve Months Ended

June 30,

 
    

     2019

    

      2018

    

     2019

    

     2018

 

 

 

 Revenue:

           

 Product

  

 

$17,103 

 

  

 

$17,159 

 

  

 

$66,069 

 

  

 

$64,497 

 

 Service and other

  

 

16,614 

 

  

 

12,926 

 

  

 

59,774 

 

  

 

45,863 

 

 

    

 

 

    

 

 

    

 

 

 

 Total revenue

  

 

33,717 

 

  

 

30,085 

 

  

 

125,843 

 

  

 

110,360 

 

 

    

 

 

    

 

 

    

 

 

 

 Cost of revenue:

           

 Product

  

 

3,298 

 

  

 

3,517 

 

  

 

16,273 

 

  

 

15,420 

 

 Service and other

  

 

7,114 

 

  

 

6,225 

 

  

 

26,637 

 

  

 

22,933 

 

 

    

 

 

    

 

 

    

 

 

 

 Total cost of revenue

  

 

10,412 

 

  

 

9,742 

 

  

 

42,910 

 

  

 

38,353 

 

 

    

 

 

    

 

 

    

 

 

 

 Gross margin

  

 

23,305 

 

  

 

20,343 

 

  

 

82,933 

 

  

 

72,007 

 

 Research and development

  

 

4,513 

 

  

 

3,933 

 

  

 

16,876 

 

  

 

14,726 

 

 Sales and marketing

  

 

4,962 

 

  

 

4,760 

 

  

 

18,213 

 

  

 

17,469 

 

 General and administrative

  

 

1,425 

 

  

 

1,271 

 

  

 

4,885 

 

  

 

4,754 

 

 

    

 

 

    

 

 

    

 

 

 

 Operating income

  

 

12,405 

 

  

 

10,379 

 

  

 

42,959 

 

  

 

35,058 

 

 Other income, net

  

 

191 

 

  

 

301 

 

  

 

729 

 

  

 

1,416 

 

 

    

 

 

    

 

 

    

 

 

 

 Income before income taxes

  

 

12,596 

 

  

 

10,680 

 

  

 

43,688 

 

  

 

36,474 

 

 Provision for (benefit from) income taxes

  

 

(591) 

 

  

 

1,807 

 

  

 

4,448 

 

  

 

19,903 

 

 

    

 

 

    

 

 

    

 

 

 

 Net income

  

 

$13,187 

 

  

 

$8,873 

 

  

 

$39,240 

 

  

 

$16,571 

 

  

 

 

    

 

 

    

 

 

    

 

 

 

 Earnings per share:

           

 Basic

  

 

$1.72 

 

  

 

$1.15 

 

  

 

$5.11 

 

  

 

$2.15 

 

 Diluted

  

 

$1.71 

 

  

 

$1.14 

 

  

 

$5.06 

 

  

 

$2.13 

 

 Weighted average shares outstanding:

           

 Basic

  

 

7,655 

 

  

 

7,683 

 

  

 

7,673 

 

  

 

7,700 

 

 Diluted

  

 

7,730 

 

  

 

7,775 

 

  

 

7,753 

 

  

 

7,794 

 

 

 


MICROSOFT CORPORATION    

 

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)

 

    

Three Months Ended
June 30,

    

Twelve Months Ended
June 30,

 
    

     2019

    

     2018

    

     2019

    

     2018

 

 

 

 Net income

  

 

$13,187 

 

  

 

$8,873 

 

  

 

$39,240 

 

  

 

$16,571 

 

  

 

 

    

 

 

    

 

 

    

 

 

 

 Other comprehensive income (loss), net of tax:

           

 Net change related to derivatives

  

 

(80) 

 

  

 

145 

 

  

 

(173) 

 

  

 

39 

 

 Net change related to investments

  

 

1,071 

 

  

 

(535) 

 

  

 

2,405 

 

  

 

(2,717) 

 

 Translation adjustments and other

  

 

(66) 

 

  

 

(686) 

 

  

 

(318) 

 

  

 

(178) 

 

 

    

 

 

    

 

 

    

 

 

 

 Other comprehensive income (loss)

  

 

925 

 

  

 

(1,076) 

 

  

 

1,914 

 

  

 

(2,856) 

 

 

    

 

 

    

 

 

    

 

 

 

 Comprehensive income

  

 

$14,112 

 

  

 

$7,797 

 

  

 

$41,154 

 

  

 

$13,715 

 

  

 

 

    

 

 

    

 

 

    

 

 

 


MICROSOFT CORPORATION    

 

BALANCE SHEETS

(In millions) (Unaudited)

 

    

June 30,

2019 

    

June 30,

2018 

 

 

 

 Assets

     

 Current assets:

     

 Cash and cash equivalents

  

 

$11,356 

 

  

 

$11,946 

 

 Short-term investments

  

 

122,463 

 

  

 

121,822 

 

 

    

 

 

 

 Total cash, cash equivalents, and short-term investments

  

 

133,819 

 

  

 

133,768 

 

 Accounts receivable, net of allowance for doubtful accounts of $411 and $377

  

 

29,524 

 

  

 

26,481 

 

 Inventories

  

 

2,063 

 

  

 

2,662 

 

 Other

  

 

10,146 

 

  

 

6,751 

 

 

    

 

 

 

 Total current assets

  

 

175,552 

 

  

 

169,662 

 

 Property and equipment, net of accumulated depreciation of $35,330 and $29,223

  

 

36,477 

 

  

 

29,460 

 

 Operating lease right-of-use assets

  

 

7,379 

 

  

 

6,686 

 

 Equity and other investments

  

 

2,649 

 

  

 

1,862 

 

 Goodwill

  

 

42,026 

 

  

 

35,683 

 

 Intangible assets, net

  

 

7,750 

 

  

 

8,053 

 

 Other long-term assets

  

 

14,723 

 

  

 

7,442 

 

 

    

 

 

 

 Total assets

  

 

$286,556 

 

  

 

$258,848 

 

  

 

 

    

 

 

 

 Liabilities and stockholders’ equity

     

 Current liabilities:

     

 Accounts payable

  

 

$9,382 

 

  

 

$8,617 

 

 Current portion of long-term debt

  

 

5,516 

 

  

 

3,998 

 

 Accrued compensation

  

 

6,830 

 

  

 

6,103 

 

 Short-term income taxes

  

 

5,665 

 

  

 

2,121 

 

 Short-term unearned revenue

  

 

32,676 

 

  

 

28,905 

 

 Other

  

 

9,351 

 

  

 

8,744 

 

 

    

 

 

 

 Total current liabilities

  

 

69,420 

 

  

 

58,488 

 

 Long-term debt

  

 

66,662 

 

  

 

72,242 

 

 Long-term income taxes

  

 

29,612 

 

  

 

30,265 

 

 Long-term unearned revenue

  

 

4,530 

 

  

 

3,815 

 

 Deferred income taxes

  

 

233 

 

  

 

541 

 

 Operating lease liabilities

  

 

6,188 

 

  

 

5,568 

 

 Other long-term liabilities

  

 

7,581 

 

  

 

5,211 

 

 

    

 

 

 

 Total liabilities

  

 

184,226 

 

  

 

176,130 

 

 

    

 

 

 

 Commitments and contingencies

     

 Stockholders’ equity:

     

 Common stock and paid-in capital — shares authorized 24,000; outstanding 7,643 and 7,677

  

 

78,520 

 

  

 

71,223 

 

 Retained earnings

  

 

24,150 

 

  

 

13,682 

 

 Accumulated other comprehensive loss

  

 

(340) 

 

  

 

(2,187) 

 

 

    

 

 

 

 Total stockholders’ equity

  

 

102,330 

 

  

 

82,718 

 

 

    

 

 

 

 Total liabilities and stockholders’ equity

  

 

            $286,556 

 

  

 

            $258,848 

 

  

 

 

    

 

 

 


MICROSOFT CORPORATION    

 

CASH FLOWS STATEMENTS

(In millions) (Unaudited)

 

    

Three Months Ended 

June 30, 

     Twelve Months Ended 
June 30, 
 
     2019      2018      2019       2018   

 

 

 Operations

           

 Net income

             $13,187         $8,873                     $39,240         $16,571   

 Adjustments to reconcile net income to net cash from operations:

           

 Depreciation, amortization, and other

     2,924         2,516         11,682         10,261   

 Stock-based compensation expense

     1,190         1,012         4,652         3,940   

 Net recognized gains on investments and derivatives

     (322)         (567)         (792)         (2,212)   

 Deferred income taxes

     (5,723)         (2,389)         (6,463)         (5,143)   

 Changes in operating assets and liabilities:

           

 Accounts receivable

     (10,070)         (9,188)         (2,812)         (3,862)   

 Inventories

     (113)         (572)         597         (465)   

 Other current assets

     (854)         (839)         (1,718)         (952)   

 Other long-term assets

     (865)         550         (1,834)         (285)   

 Accounts payable

     1,264         1,010         232         1,148   

 Unearned revenue

     9,005         8,702         4,462         5,922   

 Income taxes

     3,808         903         2,929         18,183   

 Other current liabilities

     2,436         1,773         1,419         798   

 Other long-term liabilities

     241         (366)         591         (20)   

 

    

 

 

    

 

 

    

 

 

 

 Net cash from operations

     16,108         11,418         52,185         43,884   

 

    

 

 

    

 

 

    

 

 

 

 Financing

           

 Repayments of short-term debt, maturities of 90 days or less net

                          (7,324)   

 Proceeds from issuance of debt

                          7,183   

 Repayments of debt

     (1,000)         (681)         (4,000)         (10,060)   

 Common stock issued

     308         255         1,142         1,002   

 Common stock repurchased

     (4,633)         (2,362)         (19,543)         (10,721)   

 Common stock cash dividends paid

     (3,521)         (3,226)         (13,811)         (12,699)   

 Other, net

     160         (25)         (675)         (971)   

 

    

 

 

    

 

 

    

 

 

 

 Net cash used in financing

     (8,686)         (6,039)         (36,887)         (33,590)   

 

    

 

 

    

 

 

    

 

 

 

 Investing

           

 Additions to property and equipment

     (4,051)         (3,980)         (13,925)         (11,632)   

 Acquisition of companies, net of cash acquired, and purchases of intangible and other assets

     (281)         (434)         (2,388)         (888)   

 Purchases of investments

     (15,442)         (32,380)         (57,697)         (137,380)   

 Maturities of investments

     5,154         7,108         20,043         26,360   

 Sales of investments

     7,363         27,024         38,194         117,577   

 Securities lending payable

            (8)                (98)   

 

    

 

 

    

 

 

    

 

 

 

 Net cash used in investing

     (7,257)         (2,670)         (15,773)         (6,061)   

 

    

 

 

    

 

 

    

 

 

 

 Effect of foreign exchange rates on cash and cash equivalents

     (21)         16         (115)         50   

 

    

 

 

    

 

 

    

 

 

 

 Net change in cash and cash equivalents

     144         2,725         (590)         4,283   

 Cash and cash equivalents, beginning of period

     11,212         9,221         11,946         7,663   

 

    

 

 

    

 

 

    

 

 

 

 Cash and cash equivalents, end of period

     $11,356         $11,946         $11,356         $11,946   
  

 

 

    

 

 

    

 

 

    

 

 

 


MICROSOFT CORPORATION    

 

SEGMENT REVENUE AND OPERATING INCOME

(In millions) (Unaudited)

 

     Three Months Ended
June 30,
     Twelve Months Ended
June 30,
 
     2019       2018       2019       2018   

 

 

 

 Revenue

 

           

 

 Productivity and Business Processes

 

    

 

$11,047 

 

 

 

    

 

$9,668 

 

 

 

    

 

$41,160 

 

 

 

    

 

$35,865 

 

 

 

 

 Intelligent Cloud

 

    

 

11,391 

 

 

 

    

 

9,606 

 

 

 

    

 

38,985 

 

 

 

    

 

32,219 

 

 

 

 

 More Personal Computing

 

    

 

11,279 

 

 

 

    

 

10,811 

 

 

 

    

 

45,698 

 

 

 

    

 

42,276 

 

 

 

 

    

 

 

    

 

 

    

 

 

 

 

 Total

 

    

 

            $33,717 

 

 

 

    

 

$30,085 

 

 

 

    

 

$125,843 

 

 

 

    

 

$110,360 

 

 

 

  

 

 

    

 

 

    

 

 

    

 

 

 

 

 Operating Income

 

           

 

 Productivity and Business Processes

 

    

 

$4,344 

 

 

 

    

 

$3,466 

 

 

 

    

 

$16,219 

 

 

 

    

 

$12,924 

 

 

 

 

 Intelligent Cloud

 

    

 

4,502 

 

 

 

    

 

3,901 

 

 

 

    

 

13,920 

 

 

 

    

 

11,524 

 

 

 

 

 More Personal Computing

 

    

 

3,559 

 

 

 

    

 

3,012 

 

 

 

    

 

12,820 

 

 

 

    

 

10,610 

 

 

 

 

    

 

 

    

 

 

    

 

 

 

 

 Total

 

    

 

$12,405 

 

 

 

    

 

$10,379 

 

 

 

    

 

$42,959 

 

 

 

    

 

$35,058 

 

 

 

  

 

 

    

 

 

    

 

 

    

 

 

 


MICROSOFT CORPORATION

FOURTH QUARTER FINANCIAL HIGHLIGHTS

All growth comparisons relate to the corresponding period in the last fiscal year. Please refer to the reconciliation of our GAAP and non-GAAP financial results in the table provided above for additional information.

SUMMARY

Revenue was $33.7 billion and increased 12%, driven by growth across each of our segments.

Gross margin was $23.3 billion and increased 15%, driven by growth across each of our segments. Gross margin percentage increased, driven by gross margin percentage improvement in More Personal Computing and Productivity and Business Processes, and favorable segment sales mix. Gross margin included a 6 percentage point improvement in commercial cloud, primarily from Azure.

Operating income was $12.4 billion and increased 20%, driven by growth across each of our segments.

Net income was $13.2 billion and increased 49%. Non-GAAP net income was $10.6 billion and increased 21%, excluding the net $2.6 billion income tax benefit in the current year and the net $104 million income tax benefit in the prior year. These net tax benefits are explained in the Income Taxes section below.

Diluted earnings per share was $1.71 and increased 50%. Non-GAAP diluted earnings per share was $1.37 and increased 21%, excluding $0.34 related to the net tax benefit in the current year and $0.01 related to the net tax benefit in the prior year.

Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 2%, 2%, and 4%, respectively.

SEGMENT INFORMATION

Productivity and Business Processes

Revenue increased $1.4 billion or 14%.

 

   

Office Commercial revenue increased $891 million or 14%, driven by Office 365 Commercial, offset in part by lower revenue from products licensed on-premises, reflecting a continued shift to cloud offerings. Office 365 Commercial revenue grew 31%, due to growth in seats and higher average revenue per user.

 

   

Office Consumer revenue increased $57 million or 6%, driven by Office 365 Consumer, due to recurring subscription revenue and transactional strength in Japan.

 

   

LinkedIn revenue increased $371 million or 25%, driven by growth across each line of business.

 

   

Dynamics revenue increased 12%, driven by Dynamics 365 growth.


Operating income increased $878 million or 25%.

 

   

Gross margin increased $1.2 billion or 16%, driven by growth in Office Commercial and LinkedIn. Gross margin percentage increased, due to gross margin percentage improvement in LinkedIn and Office 365 Commercial, offset in part by an increased mix of cloud offerings.

 

   

Operating expenses increased $314 million or 8%, driven by investments in LinkedIn and cloud engineering.

Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 3%, 4%, and 6%, respectively.

Intelligent Cloud

Revenue increased $1.8 billion or 19%.

 

   

Server products and cloud services revenue, including GitHub, increased $1.7 billion or 22%, driven by Azure. Azure revenue growth was 64%, due to higher infrastructure-as-a-service and platform-as-a-service consumption-based and per-user-based services. Server products revenue grew 5%, driven by demand ahead of end of support for SQL Server 2008 and Windows Server 2008, hybrid solutions, and GitHub.

 

   

Enterprise Services revenue increased $60 million or 4%, driven by growth in Premier Support Services.

Operating income increased $601 million or 15%.

 

   

Gross margin increased $1.3 billion or 19%, driven by growth in server products and cloud services revenue and cloud services scale and efficiencies. Gross margin percentage was relatively unchanged, with gross margin percentage improvement in Azure offset by an increased mix of cloud offerings.

 

   

Operating expenses increased $674 million or 23%, driven by investments in cloud and artificial intelligence (AI) engineering, GitHub, and revenue-driven operating expenses.

Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 2%, 2%, and 4%, respectively.

More Personal Computing

Revenue increased $468 million or 4%.

 

   

Windows revenue increased $368 million or 7%, driven by growth in Windows OEM and Windows Commercial, offset in part by a decrease in patent licensing. Windows OEM revenue increased 9%. Windows OEM Pro revenue increased 18%, ahead of the commercial PC market, driven by healthy


 

Windows 10 demand, strong momentum in advance of Windows 7 end of support, and increased inventory levels. Windows OEM non-Pro revenue declined 8%, below the consumer PC market, driven by continued pressure in the entry level category. Windows Commercial revenue increased 13%, driven by an increase of multi-year agreements that carry higher in-quarter revenue recognition.

 

   

Surface revenue increased $165 million or 14%, driven by strong growth in our commercial segment.

 

   

Search advertising revenue increased $184 million or 10%. Search advertising revenue, excluding traffic acquisition costs, increased 9%, driven by higher revenue per search.

 

   

Gaming revenue decreased $233 million or 10%. Xbox hardware revenue declined 48%, primarily due to a decrease in volume of consoles sold. Xbox software and services revenue declined 3% against a high prior year comparable from a third-party title, offset in part by subscriptions growth.

Operating income increased $547 million or 18%.

 

   

Gross margin increased $495 million or 8%, driven by growth in Windows. Gross margin percentage increased, primarily due to a sales mix shift to higher gross margin Windows businesses.

 

   

Operating expenses decreased $52 million or 2%.

Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 2%, 2%, and 4%, respectively.

EXPENSES

 

   

Cost of revenue increased $670 million or 7%, driven by growth in commercial cloud.

 

   

Research and development expenses increased $580 million or 15%, driven by investments in cloud and AI engineering, Gaming, GitHub, and LinkedIn.

 

   

Sales and marketing expenses increased $202 million or 4%, driven by investments in LinkedIn and GitHub. Expenses included a favorable foreign currency impact of 2%.

 

   

General and administrative expenses increased $154 million or 12%, driven by higher legal costs and GitHub.

OTHER INCOME, NET

Other income, net, decreased $110 million, driven by lower net recognized gains on investments, offset in part by lower net losses on foreign currency remeasurements and higher interest and dividends income.


INCOME TAXES

The current quarter effective tax rate was (5)% and 16% on a GAAP and non-GAAP basis, respectively, compared to 17% and 18% in the prior year. GAAP results include a net income tax benefit of $2.6 billion related to intangible property transfers for the fourth quarter of fiscal year 2019 and a net income tax benefit of $104 million related to the TCJA for the fourth quarter of fiscal year 2018. These net tax benefits are excluded from our non-GAAP results.

In the fourth quarter of fiscal year 2019, in response to the TCJA and recently issued regulations, we transferred certain intangible properties held by our foreign subsidiaries to the United States and Ireland. The transfers of intangible properties resulted in a net $2.6 billion tax benefit recorded in the fourth quarter of fiscal year 2019, as the value of future tax deductions exceeded the current tax liability from foreign jurisdictions and United States GILTI tax.

CONTRACTED NOT RECOGNIZED REVENUE

Contracted not recognized revenue, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $91 billion as of June 30, 2019, an increase of 25% over the prior year. We expect to recognize approximately 50% of this revenue over the next 12 months and the remainder thereafter. Many customers are committing to our products and services for longer contract terms, which is increasing the percentage of contracted revenue that will be recognized beyond the next 12 months.