EX-99.1 2 d859992dex991.htm EXHIBIT 99.1 Exhibit 99.1

Exhibit 99.1

Microsoft Cloud and Devices Momentum Highlights Second Quarter Results

Commercial cloud revenue grows triple-digits for the sixth consecutive quarter, reaching an annualized revenue run rate of $5.5 billion

REDMOND, Wash. — January 26, 2015 — Microsoft Corp. today announced revenue of $26.5 billion for the quarter ended December 31, 2014. Gross margin, operating income, and diluted earnings per share (“EPS”) for the quarter were $16.3 billion, $7.8 billion, and $0.71 per share, respectively.

These financial results include $243 million of integration and restructuring expenses, or a $0.02 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. There is also a $0.04 per share negative impact related to income tax expense resulting from an IRS audit adjustment.

Microsoft also announced its intention to complete the existing $40 billion share repurchase authorization by December 31, 2016.

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 December 31,
($ in millions, except per share amounts)    Revenue      Gross Margin      Operating
Income
     Diluted EPS

 

2013 As Reported (GAAP)

 

  

 

 

 

 

$24,519

 

 

  

 

  

 

 

 

 

$16,197

 

 

  

 

    

 

$7,969

 

  

 

  

$0.78

 

 

2014 As Reported (GAAP)

 

    

 

$26,470

 

  

 

    

 

$16,334

 

  

 

    

 

$7,776

 

  

 

  

$0.71

 

 

%Y/Y (GAAP)

 

    

 

8%

 

  

 

    

 

1%

 

  

 

    

 

(2)%

 

  

 

  

(9)%

 

 

2014 Impact of Noted Items

 

    

 

-

 

  

 

    

 

-

 

  

 

    

 

$(243)

 

  

 

  

$(0.02)

 

“Microsoft is continuing to transform, executing against our strategic priorities and extending our cloud leadership,” said Satya Nadella, chief executive officer of Microsoft. “We are taking bold steps forward across our business, and specifically with Windows 10, to deliver new experiences, new categories, and new opportunities to our customers.”

“We remain disciplined in our approach to operational and execution excellence, balanced with investments that drive meaningful growth for the business while increasing capital return to shareholders,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Devices and Consumer revenue grew 8% to $12.9 billion, with the following business highlights:

 

    Surface revenue of $1.1 billion, up 24%, driven by Surface Pro 3 and accessories

 

    Office 365 Home and Personal subscribers increased to over 9.2 million, up 30% sequentially over prior quarter

 

    Search advertising revenue grew 23%, with Bing U.S. market share at 19.7%, up 150 basis points over prior year

 

    Xbox console sales totaled 6.6 million units, with strong holiday season performance

 

    Phone Hardware revenue of $2.3 billion, with 10.5 million Lumia units sold driven by growth in affordable smartphones


    Windows OEM Pro revenue declined 13%; revenue was impacted by the business PC market and Pro mix returning to pre-Windows XP end of support levels and by new lower-priced licenses for devices sold to academic customers

 

    Windows OEM non-Pro revenue declined 13%, with license growth from opening price point devices

Commercial revenue grew 5% to $13.3 billion, with the following business highlights:

 

    Commercial cloud revenue grew 114% driven by Office 365, Azure and Dynamic CRM Online, and is now on an annualized revenue run rate of $5.5 billion

 

    Office Commercial products and services revenue declined 1%; transactional revenue was impacted by the continued transition to Office 365 and declines in commercial PCs following the XP refresh cycle

 

    Server products and services revenue grew 9%, with double-digit growth of SQL Server and System Center

 

    Windows volume licensing revenue increased by 3%, with annuity revenue growth partially offset by declining transactional revenue

“We again saw enthusiasm and demand around our cloud offerings like Office 365, Dynamics CRM Online and Azure, as well as Surface Pro 3,” said Kevin Turner, chief operating officer at Microsoft. “Our sales engagement worldwide continues to focus on helping customers and partners transition to the cloud and navigate the shifting product mix related to our services and solutions.”

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. PST (5:30 p.m. EST) 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 January 26, 2016.

Noted Items Definition

Integration and restructuring expenses were $243 million during the three months ended December 31, 2014. 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.

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 protect and earn 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 and services 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 trade protection and anti-corruption laws resulting from our international operations;

 

    Microsoft’s ability to attract and retain talented employees;

 

    adverse results in legal disputes;

 

    unanticipated tax liabilities;

 

    Microsoft’s 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 January 26, 2015. 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. PST 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

December 31,

 

Six Months Ended

December 31,

 
  2014   2013   2014   2013  

 

 

Revenue

    $ 26,470        $ 24,519        $ 49,671        $ 43,048   

Cost of revenue

  10,136      8,322      18,409      13,467   

 

    

 

 

    

 

 

    

 

 

 

Gross margin

  16,334      16,197      31,262      29,581   

Research and development

  2,903      2,748      5,968      5,515   

Sales and marketing

  4,315      4,283      8,043      7,587   

General and administrative

  1,097      1,197      2,248      2,176   

Integration and restructuring

  243      0      1,383      0   

 

    

 

 

    

 

 

    

 

 

 

Operating income

  7,776      7,969      13,620      14,303   

Other income (expense), net

  74      (91)      126      (17)   

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

  7,850      7,878      13,746      14,286   

Provision for income taxes

  1,987      1,320      3,343      2,484   

 

    

 

 

    

 

 

    

 

 

 

Net income

    $         5,863        $     6,558        $         10,403        $     11,802   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

Basic

    $ 0.71        $ 0.79        $ 1.26        $ 1.42   

Diluted

    $ 0.71        $ 0.78        $ 1.25        $ 1.40   

Weighted average shares outstanding:

Basic

  8,228      8,326      8,238      8,333   

Diluted

  8,297      8,395      8,321      8,423   

Cash dividends declared per common share

    $ 0.31        $ 0.28        $ 0.62        $ 0.56   

 

 


MICROSOFT CORPORATION

COMPREHENSIVE INCOME STATEMENTS

(In millions)(Unaudited)

 

  Three Months Ended
December 31,
  Six Months Ended
December 31,
 
  2014   2013   2014   2013  

 

 

Net income

    $ 5,863        $ 6,558        $ 10,403        $ 11,802   

Other comprehensive income (loss):

Net unrealized gains on derivatives (net of
tax effects of $6, $1, $10 and $(2))

  247      43      566      17   

Net unrealized gains (losses) on investments (net of tax effects of $(124), $245, $(226) and $737)

  (231)      482      (420)      1,434   

Translation adjustments and other (net of tax effects of $(211), $11, $(258) and $44)

  (390)      21      (471)      83   

 

    

 

 

    

 

 

    

 

 

 

  Other comprehensive income (loss)

  (374)      546      (325)      1,534   

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income

    $         5,489        $     7,104        $         10,078        $     13,336   
  

 

 

    

 

 

    

 

 

    

 

 

 


MICROSOFT CORPORATION

BALANCE SHEETS

(In millions)(Unaudited)

 

  December 31,
2014
  June 30,
2014
 

 

 

Assets

Current assets:

Cash and cash equivalents

    $ 6,426        $ 8,669   

Short-term investments (including securities
loaned of $414 and $541)

  83,823      77,040   

 

    

 

 

 

Total cash, cash equivalents, and short-term
investments

  90,249      85,709   

Accounts receivable, net of allowance for doubtful
accounts of $288 and $301

  16,186      19,544   

Inventories

  2,053      2,660   

Deferred income taxes

  1,701      1,941   

Other

  6,173      4,392   

 

    

 

 

 

Total current assets

  116,362      114,246   

Property and equipment, net of accumulated
depreciation of $16,192 and $14,793

  13,607      13,011   

Equity and other investments

  12,665      14,597   

Goodwill

  21,855      20,127   

Intangible assets, net

  7,299      6,981   

Other long-term assets

  3,060      3,422   

 

    

 

 

 

Total assets

    $   174,848        $   172,384   
  

 

 

    

 

 

 

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

    $ 6,932        $ 7,432   

Short-term debt

  8,299      2,000   

Current portion of long-term debt

  1,749      0   

Accrued compensation

  3,479      4,797   

Income taxes

  711      782   

Short-term unearned revenue

  19,192      23,150   

Securities lending payable

  430      558   

Other

  6,623      6,906   

 

    

 

 

 

Total current liabilities

  47,415      45,625   

Long-term debt

  18,260      20,645   

Long-term unearned revenue

  2,051      2,008   

Deferred income taxes

  2,820      2,728   

Other long-term liabilities

  12,423      11,594   

 

    

 

 

 

Total liabilities

  82,969      82,600   

 

    

 

 

 

Commitments and contingencies

Stockholders’ equity:

Common stock and paid-in capital - shares
authorized 24,000; outstanding 8,218 and 8,239

  68,765      68,366   

Retained earnings

  19,731      17,710   

Accumulated other comprehensive income

  3,383      3,708   

 

    

 

 

 

Total stockholders’ equity

  91,879      89,784   

 

    

 

 

 

Total liabilities and stockholders’ equity

    $ 174,848        $ 172,384   
  

 

 

    

 

 

 


MICROSOFT CORPORATION

CASH FLOWS STATEMENTS

(In millions)(Unaudited)

 

    

Three Months Ended

December 31,

     Six Months Ended
December 31,
 
     2014      2013      2014      2013  

 

 

Operations

           

Net income

       $ 5,863           $ 6,558           $ 10,403           $ 11,802   

Adjustments to reconcile net income
to net cash from operations:

           

Depreciation, amortization, and
other

     1,521         1,261         2,949         2,215   

Stock-based compensation
expense

     633         591         1,279         1,226   

Net recognized losses (gains) on
investments and derivatives

     (179)         47         (124)         140   

Excess tax benefits from
stock-based compensation

     (22)         (20)         (524)         (225)   

Deferred income taxes

     314         (176)         615         228   

Deferral of unearned revenue

     10,200         9,845         18,222         17,281   

Recognition of unearned revenue

     (11,495)         (10,578)         (22,138)         (20,255)   

Changes in operating assets and
liabilities:

           

Accounts receivable

     (3,378)         (4,875)         3,249         1,742   

Inventories

     1,070         1,029         587         362   

Other current assets

     (159)         (95)         (439)         (651)   

Other long-term assets

     170         (315)         449         (396)   

Accounts payable

     137         602         (522)         326   

Other current liabilities

     (986)         388         (2,152)         (867)   

Other long-term liabilities

     651         151         840         (310)   

 

    

 

 

    

 

 

    

 

 

 

Net cash from operations

     4,340         4,413         12,694         12,618   

 

    

 

 

    

 

 

    

 

 

 

Financing

           

Proceeds from issuance of short-term debt, maturities of 90 days or less, net

     4,798         (712)         7,797         0   

Proceeds from issuance of debt

     0         8,262         0         8,850   

Repayments of debt

     0         (588)         (1,500)         (1,588)   

Common stock issued

     121         117         337         320   

Common stock repurchased

     (2,145)         (2,113)         (5,033)         (4,301)   

Common stock cash dividends paid

     (2,547)         (2,332)         (4,854)         (4,248)   

Excess tax benefits from
stock-based compensation

     22         20         524         225   

Other

     285         (39)         285         (39)   

 

    

 

 

    

 

 

    

 

 

 

Net cash from (used in) financing

     534         2,615         (2,444)         (781)   

 

    

 

 

    

 

 

    

 

 

 

Investing

           

Additions to property and equipment

     (1,490)         (1,732)         (2,772)         (2,963)   

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

     (2,794)         (139)         (2,935)         (154)   

Purchases of investments

     (19,167)         (13,126)         (43,252)         (27,894)   

Maturities of investments

     2,389         1,451         4,082         1,798   

Sales of investments

     16,108         12,354         32,553         23,471   

Securities lending payable

     238         167         (129)         103   

 

    

 

 

    

 

 

    

 

 

 

Net cash used in investing

     (4,716)         (1,025)         (12,453)         (5,639)   

 

    

 

 

    

 

 

    

 

 

 

Effect of exchange rates on cash
and cash equivalents

     (34)         33         (40)         57   

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash
equivalents

     124         6,036         (2,243)         6,255   

Cash and cash equivalents,
beginning of period

     6,302         4,023         8,669         3,804   

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of
period

       $         6,426           $     10,059           $         6,426           $     10,059   
  

 

 

    

 

 

    

 

 

    

 

 

 


MICROSOFT CORPORATION

SEGMENT REVENUE AND GROSS MARGIN

(In millions)(Unaudited)

 

 

Three Months Ended

December 31,

 

Six Months Ended

December 31,

 
  2014   2013   2014   2013  

 

 

Revenue

Devices and Consumer Licensing

    $ 4,167        $ 5,544        $ 8,260        $ 10,028   

Computing and Gaming Hardware

  3,997      4,470      6,450      5,879   

Phone Hardware

  2,284      0      4,893      0   

Devices and Consumer Other

  2,436      1,874      4,245      3,428   

Commercial Licensing

  10,679      10,906      20,552      20,517   

Commercial Other

  2,593      1,780      5,000      3,382   

Corporate and Other

  314      (55)      271      (186)   

 

    

 

 

    

 

 

    

 

 

 

Total revenue

    $ 26,470        $ 24,519        $ 49,671        $ 43,048   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross Margin

Devices and Consumer Licensing

    $ 3,876        $ 4,981        $ 7,694        $ 8,901   

Computing and Gaming Hardware

  460      411      939      616   

Phone Hardware

  331      0      809      0   

Devices and Consumer Other

  550      387      862      711   

Commercial Licensing

  9,926      10,080      19,026      18,885   

Commercial Other

  900      415      1,705      689   

Corporate and Other

  291      (77)      227      (221)   

 

    

 

 

    

 

 

    

 

 

 

Total gross margin

    $         16,334        $     16,197        $         31,262        $     29,581