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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, 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 October 23, 2019, Microsoft Corporation issued a press release announcing its financial results for the fiscal quarter ended September 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:

 

99.1

   

Press release, dated October 23, 2019, issued by Microsoft Corporation

         
 

104

   

Cover Page Interactive Data File (embedded within the Inline XBRL document).


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, 2019

 

/s/ Frank H. Brod

 

Frank H. Brod

 

Corporate Vice President, Finance and

Administration;

Chief Accounting Officer

Exhibit 99.1

Microsoft Cloud Strength Drives First Quarter Results

REDMOND, Wash. — October 23, 2019 — Microsoft Corp. today announced the following results for the quarter ended September 30, 2019, as compared to the corresponding period of last fiscal year:

 

   

Revenue was $33.1 billion and increased 14%

   

Operating income was $12.7 billion and increased 27%

   

Net income was $10.7 billion and increased 21%

   

Diluted earnings per share was $1.38 and increased 21%

“The world’s leading companies are choosing our cloud to build their digital capability,” said Satya Nadella, chief executive officer of Microsoft. “We are accelerating our innovation across the entire tech stack to deliver new value for customers and investing in large and growing markets with expansive opportunity.”

Microsoft returned $7.9 billion to shareholders in the form of dividends and share repurchases in the first quarter of fiscal year 2020, an increase of 28% compared to the first quarter of fiscal year 2019.

“It was a strong start to the fiscal year with our commercial cloud generating $11.6 billion in revenue for the quarter, up 36% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Revenue in Productivity and Business Processes was $11.1 billion and increased 13% (up 15% in constant currency), with the following business highlights:

 

   

Office Commercial products and cloud services revenue increased 13% (up 15% in constant currency) driven by Office 365 Commercial revenue growth of 25% (up 28% in constant currency)

   

Office Consumer products and cloud services revenue increased 5% (up 6% in constant currency) with continued growth in Office 365 Consumer subscribers to 35.6 million

   

LinkedIn revenue increased 25% (up 26% in constant currency)

   

Dynamics products and cloud services revenue increased 14% (up 16% in constant currency) driven by Dynamics 365 revenue growth of 41% (up 44% in constant currency)

Revenue in Intelligent Cloud was $10.8 billion and increased 27% (up 29% in constant currency), with the following business highlights:

 

   

Server products and cloud services revenue increased 30% (up 33% in constant currency) driven by Azure revenue growth of 59% (up 63% in constant currency)

   

Enterprise Services revenue increased 7% (up 8% in constant currency)

Revenue in More Personal Computing was $11.1 billion and increased 4% (up 5% 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 26% (up 29% in constant currency)

   

Search advertising revenue excluding traffic acquisition costs increased 11% (up 13% in constant currency)

   

Xbox content and services revenue was relatively unchanged (up 1% in constant currency)

   

Surface revenue decreased 4% (down 2% in constant currency)


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 October 23, 2020.

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 generally accepted accounting principles (GAAP).


Financial Performance Constant Currency Reconciliation

 

     

Three Months Ended September 30,

 

 

   ($ in millions, except per share amounts)

 

  

  Revenue  

 

    

  Operating  

  Income  

 

    

  Net Income  

 

    

  Diluted  
  Earnings per  

  Share  

 

 

  2018 As Reported

  

 

$29,084

 

  

 

$9,955

 

  

 

$8,824

 

  

 

$1.14

 

  2019 As Reported

  

 

$33,055

 

  

 

$12,686

 

  

 

$10,678

 

  

 

$1.38

 

  Percentage Change Y/Y

  

 

14%

 

  

 

27%

 

  

 

21%

 

  

 

21%

 

  Constant Currency Impact

  

 

$(507)

 

  

 

$(409)

 

  

 

$(375)

 

  

 

$(0.05)

 

  Percentage Change Y/Y Constant Currency

  

 

15%

 

  

 

32%

 

  

 

25%

 

  

 

25%

 

Segment Revenue Constant Currency Reconciliation

 

     

Three Months Ended September 30,

 

 

   ($ in millions)

 

  

Productivity and

Business Processes

 

    

Intelligent Cloud

 

    

More Personal

      Computing      

 

 

  2018 As Reported

  

 

$9,771

 

  

 

$8,567

 

  

 

$10,746

 

  2019 As Reported

  

 

$11,077

 

  

 

$10,845

 

  

 

$11,133

 

  Percentage Change Y/Y

  

 

13%

 

  

 

27%

 

  

 

4%

 

  Constant Currency Impact

  

 

$(196)

 

  

 

$(200)

 

  

 

$(111)

 

  Percentage Change Y/Y Constant Currency

  

 

15%

 

  

 

29%

 

  

 

5%

 

Selected Product and Service Revenue Constant Currency Reconciliation

 

     

Three Months Ended September 30, 2019

 

 
     

Percentage Change
Y/Y (GAAP)

 

    

Constant Currency
Impact

 

    

Percentage Change
Y/Y Constant
Currency

 

 

  Office commercial products and cloud services

  

 

13%

 

  

 

2%

 

  

 

15%

 

  Office 365 commercial

  

 

25%

 

  

 

3%

 

  

 

28%

 

  Office consumer products and cloud services

  

 

5%

 

  

 

1%

 

  

 

6%

 

  LinkedIn

  

 

25%

 

  

 

1%

 

  

 

26%

 

  Dynamics products and cloud services

  

 

14%

 

  

 

2%

 

  

 

16%

 

  Dynamics 365

  

 

41%

 

  

 

3%

 

  

 

44%

 

  Server products and cloud services

  

 

30%

 

  

 

3%

 

  

 

33%

 

  Azure

  

 

59%

 

  

 

4%

 

  

 

63%

 

  Enterprise Services

  

 

7%

 

  

 

1%

 

  

 

8%

 

  Windows OEM

  

 

9%

 

  

 

0%

 

  

 

9%

 

  Windows commercial products and cloud services

  

 

26%

 

  

 

3%

 

  

 

29%

 

  Search advertising excluding traffic acquisition costs

  

 

11%

 

  

 

2%

 

  

 

13%

 

  Surface

  

 

(4)%

 

  

 

2%

 

  

 

(2)%

 

  Xbox content and services

  

 

0%

 

  

 

1%

 

  

 

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; and

 

   

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

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 September 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

September 30,

 
    

     2019

    

     2018

 

 

 

 Revenue:

     

 Product

  

 

$15,768 

 

  

 

$17,299 

 

 Service and other

  

 

17,287 

 

  

 

11,785 

 

 

    

 

 

 

 Total revenue

  

 

33,055 

 

  

 

29,084 

 

 

    

 

 

 

 Cost of revenue:

     

 Product

  

 

3,305 

 

  

 

3,649 

 

 Service and other

  

 

7,101 

 

  

 

6,256 

 

 

    

 

 

 

 Total cost of revenue

  

 

10,406 

 

  

 

9,905 

 

 

    

 

 

 

 Gross margin

  

 

22,649 

 

  

 

19,179 

 

 Research and development

  

 

4,565 

 

  

 

3,977 

 

 Sales and marketing

  

 

4,337 

 

  

 

4,098 

 

 General and administrative

  

 

1,061 

 

  

 

1,149 

 

 

    

 

 

 

 Operating income

  

 

12,686 

 

  

 

9,955 

 

 Other income, net

  

 

 

  

 

266 

 

 

    

 

 

 

 Income before income taxes

  

 

12,686 

 

  

 

10,221 

 

 Provision for income taxes

  

 

2,008 

 

  

 

1,397 

 

 

    

 

 

 

 Net income

  

 

$10,678 

 

  

 

$8,824 

 

  

 

 

    

 

 

 

 Earnings per share:

     

 Basic

  

 

$1.40 

 

  

 

$1.15 

 

 Diluted

  

 

$1.38 

 

  

 

$1.14 

 

 Weighted average shares outstanding:

     

 Basic

  

 

7,634 

 

  

 

7,673 

 

 Diluted

  

 

7,710 

 

  

 

7,766 

 

 

 


MICROSOFT CORPORATION    

 

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)

 

    

Three Months Ended
September 30,

 
    

     2019

    

     2018

 

 

 

 Net income

  

 

$10,678 

 

  

 

$8,824 

 

  

 

 

    

 

 

 

 Other comprehensive income (loss), net of tax:

     

 Net change related to derivatives

  

 

(2) 

 

  

 

(45) 

 

 Net change related to investments

  

 

577 

 

  

 

(261) 

 

 Translation adjustments and other

  

 

(296) 

 

  

 

(55) 

 

 

    

 

 

 

 Other comprehensive income (loss)

  

 

279 

 

  

 

(361) 

 

 

    

 

 

 

 Comprehensive income

  

 

$10,957 

 

  

 

$8,463 

 

  

 

 

    

 

 

 


MICROSOFT CORPORATION    

 

BALANCE SHEETS

(In millions) (Unaudited)

 

     September 30,
2019 
     June 30,
2019 
 

 

 

 Assets

     

 Current assets:

     

 Cash and cash equivalents

  

 

$13,117 

 

  

 

$11,356 

 

 Short-term investments

  

 

123,519 

 

  

 

122,463 

 

 

    

 

 

 

 Total cash, cash equivalents, and short-term investments

  

 

136,636 

 

  

 

133,819 

 

 Accounts receivable, net of allowance for doubtful accounts of $303 and $411

  

 

19,087 

 

  

 

29,524 

 

 Inventories

  

 

2,622 

 

  

 

2,063 

 

 Other current assets

  

 

7,551 

 

  

 

10,146 

 

 

    

 

 

 

 Total current assets

  

 

165,896 

 

  

 

175,552 

 

 Property and equipment, net of accumulated depreciation of $36,971 and $35,330

  

 

38,409 

 

  

 

36,477 

 

 Operating lease right-of-use assets

  

 

7,890 

 

  

 

7,379 

 

 Equity investments

  

 

2,684 

 

  

 

2,649 

 

 Goodwill

  

 

42,113 

 

  

 

42,026 

 

 Intangible assets, net

  

 

7,508 

 

  

 

7,750 

 

 Other long-term assets

  

 

14,455 

 

  

 

14,723 

 

 

    

 

 

 

 Total assets

  

 

$278,955 

 

  

 

$286,556 

 

  

 

 

    

 

 

 

 Liabilities and stockholders’ equity

     

 Current liabilities:

     

 Accounts payable

  

 

$8,574 

 

  

 

$9,382 

 

 Current portion of long-term debt

  

 

3,017 

 

  

 

5,516 

 

 Accrued compensation

  

 

4,676 

 

  

 

6,830 

 

 Short-term income taxes

  

 

3,440 

 

  

 

5,665 

 

 Short-term unearned revenue

  

 

29,904 

 

  

 

32,676 

 

 Other current liabilities

  

 

8,507 

 

  

 

9,351 

 

 

    

 

 

 

 Total current liabilities

  

 

58,118 

 

  

 

69,420 

 

 Long-term debt

  

 

66,478 

 

  

 

66,662 

 

 Long-term income taxes

  

 

28,457 

 

  

 

29,612 

 

 Long-term unearned revenue

  

 

4,122 

 

  

 

4,530 

 

 Deferred income taxes

  

 

234 

 

  

 

233 

 

 Operating lease liabilities

  

 

6,659 

 

  

 

6,188 

 

 Other long-term liabilities

  

 

8,826 

 

  

 

7,581 

 

 

    

 

 

 

 Total liabilities

  

 

172,894 

 

  

 

184,226 

 

 

    

 

 

 

 Commitments and contingencies

     

 Stockholders’ equity:

     

 Common stock and paid-in capital — shares authorized 24,000; outstanding 7,634 and 7,643

  

 

78,882 

 

  

 

78,520 

 

 Retained earnings

  

 

27,240 

 

  

 

24,150 

 

 Accumulated other comprehensive loss

  

 

(61) 

 

  

 

(340) 

 

 

    

 

 

 

 Total stockholders’ equity

  

 

106,061 

 

  

 

102,330 

 

 

    

 

 

 

 Total liabilities and stockholders’ equity

  

 

            $278,955 

 

  

 

            $286,556 

 

  

 

 

    

 

 

 


MICROSOFT CORPORATION    

 

CASH FLOWS STATEMENTS

(In millions) (Unaudited)

 

     Three Months Ended 
September 30, 
 
     2019       2018   

 

 

 Operations

     

 Net income

             $10,678         $8,824   

 Adjustments to reconcile net income to net cash from operations:

     

 Depreciation, amortization, and other

     2,971         2,837   

 Stock-based compensation expense

     1,262         1,107   

 Net recognized losses (gains) on investments and derivatives

     11         (240)   

 Deferred income taxes

     (177)         (247)   

 Changes in operating assets and liabilities:

           

 Accounts receivable

     10,090         9,194   

 Inventories

     (561)         (956)   

 Other current assets

     (438)         (677)   

 Other long-term assets

     (333)         21   

 Accounts payable

     (547)         (395)   

 Unearned revenue

     (2,892)         (2,441)   

 Income taxes

     (3,336)         (1,091)   

 Other current liabilities

     (3,320)         (2,322)   

 Other long-term liabilities

     410         43   

 

    

 

 

 

 Net cash from operations

     13,818         13,657   

 

    

 

 

 

 Financing

     

 Repayments of debt

     (2,500)          

 Common stock issued

     427         360   

 Common stock repurchased

     (4,912)         (3,744)   

 Common stock cash dividends paid

     (3,510)         (3,220)   

 Other, net

     286         (780)   

 

    

 

 

 

 Net cash used in financing

     (10,209)         (7,384)   

 

    

 

 

 

 Investing

     

 Additions to property and equipment

     (3,385)         (3,602)   

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

     (462)         (245)   

 Purchases of investments

     (23,390)         (19,551)   

 Maturities of investments

     19,082         5,214   

 Sales of investments

     6,379         15,231   

 

    

 

 

 

 Net cash used in investing

     (1,776)         (2,953)   

 

    

 

 

 

 Effect of foreign exchange rates on cash and cash equivalents

     (72)         (129)   

 

    

 

 

 

 Net change in cash and cash equivalents

     1,761         3,191   

 Cash and cash equivalents, beginning of period

     11,356         11,946   

 

    

 

 

 

 Cash and cash equivalents, end of period

     $13,117         $15,137   
  

 

 

    

 

 

 


MICROSOFT CORPORATION    

 

SEGMENT REVENUE AND OPERATING INCOME

(In millions) (Unaudited)

 

    

Three Months Ended

September 30,

 
     2019       2018   

 

 

 

 Revenue

 

     

 

 Productivity and Business Processes

 

    

 

$11,077 

 

 

 

    

 

$9,771 

 

 

 

 

 Intelligent Cloud

 

    

 

10,845 

 

 

 

    

 

8,567 

 

 

 

 

 More Personal Computing

 

    

 

11,133 

 

 

 

    

 

10,746 

 

 

 

 

    

 

 

 

 

 Total

 

    

 

            $33,055 

 

 

 

    

 

$29,084 

 

 

 

  

 

 

    

 

 

 

 

 Operating Income

 

     

 

 Productivity and Business Processes

 

    

 

$4,782 

 

 

 

    

 

$3,881 

 

 

 

 

 Intelligent Cloud

 

    

 

3,889 

 

 

 

    

 

2,931 

 

 

 

 

 More Personal Computing

 

    

 

4,015 

 

 

 

    

 

3,143 

 

 

 

 

    

 

 

 

 

 Total

 

    

 

$12,686 

 

 

 

    

 

$9,955