EX-99.1 2 d809612dex991.htm EX-99.1 EX-99.1

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.


    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;


    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.


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   

 

 


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   
  

 

 

    

 

 

 


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   
  

 

 

    

 

 

 


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   
  

 

 

    

 

 

 


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