Annual Report on Form 11-K
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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 11-K

x  ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

¨    TRANSITION REPORT PURSUANT TO SECTION 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From              to             

 

 

Commission File Number 0-14278

A.  Full title of the plan and the address of the plan, if different from that of the issuer named below:

MICROSOFT CARIBBEAN, INC. 1165(e) RETIREMENT PLAN

B.  Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

Microsoft Corporation

One Microsoft Way

Redmond, Washington 98052-6399

REQUIRED INFORMATION

The MICROSOFT CARIBBEAN, INC. 1165(e) RETIREMENT PLAN (the Plan) is subject to the Employee Retirement Income Security Act of 1974 (ERISA). Therefore, in lieu of the requirements of Items 1-3 of Form 11-K, the statements of net assets available for benefits as of December 31, 2008 and 2007, and the related statements of changes in net assets available for benefits for the year ended December 31, 2008 and schedules, which have been prepared in accordance with the financial reporting requirements of ERISA, are attached hereto as Appendix 1 and incorporated herein by this reference.


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SIGNATURES

The Plan. Pursuant to the requirements of the Securities and Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

Microsoft Caribbean, Inc. 1165(e) Retirement Plan

 

Date:    June 26, 2009     /s/  Ambrose Ramsahai
      Ambrose Ramsahai
    General Manager

 

    /s/  Jonny Backman
      Jonny Backman
    Financial Controller

 

    /s/  Brenda Perez
      Brenda Perez
    Human Resources Manager

 

 

 


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MICROSOFT CARIBBEAN, INC.

1165(E) RETIREMENT PLAN

FINANCIAL STATEMENTS AS OF DECEMBER 31, 2008 AND

2007 AND FOR THE YEAR ENDED DECEMBER 31, 2008,

SUPPLEMENTAL SCHEDULE AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2008, AND

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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MICROSOFT CARIBBEAN, INC. 1165(e) RETIREMENT PLAN

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     Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   3–4

FINANCIAL STATEMENTS:

  

Statements of Net Assets Available for Benefits as of December 31, 2008 and 2007

   5

Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 2008

   6

Notes to Financial Statements as of December 31, 2008 and 2007, and for the Year Ended December 31, 2008

   7–11

SUPPLEMENTAL SCHEDULES —

  

Form 5500, Schedule H, Part IV, Line 4i — Schedule of Assets (Held at End of Year) as of December  31, 2008

   12

Form 5500, Schedule H, Part IV, Question  4a — Delinquent Participant Contributions for the Year Ended December 31, 2008

   13

Form 5500, Schedule H, Part IV, Question  4j — Schedule of Reportable Transactions for the Year Ended December 31, 2008

   14

 

NOTE: All other schedules required by Section 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Trustee and Participants of

Microsoft Caribbean, Inc. 1165(e) Retirement Plan:

We have audited the accompanying statements of net assets available for benefits of Microsoft Caribbean, Inc. 1165(e) Retirement Plan (the “Plan”) as of December 31, 2008 and 2007, and the related statement of changes in net assets available for benefits for the year ended December 31, 2008. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2008 and 2007, and the changes in net assets available for benefits for the year ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

 

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Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedules of (1) assets (held at end of year) as of December 31, 2008, (2) delinquent participant contributions for the year ended December 31, 2008, and (3) transactions in excess of five percent of the current value of plan assets for the year ended December 31, 2008, are presented for the purpose of additional analysis and are not a required part of the basic financial statements, but are supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These schedules are the responsibility of the Plan’s management. Such schedules have been subjected to the auditing procedures applied in our audit of the basic 2008 financial statements and, in our opinion, are fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.

/s/ Deloitte & Touche LLP

San Juan, Puerto Rico

June 6, 2009

Stamp No.

affixed to original.

 

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MICROSOFT CARIBBEAN, INC. 1165(e) RETIREMENT PLAN

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS

AS OF DECEMBER 31, 2008 AND 2007

 

 

     2008    2007

ASSETS

     

INVESTMENTS — At fair value

   $ 1,888,012    $ 2,068,598
             

CONTRIBUTIONS RECEIVABLE:

     

Participants

        4,919

Employer

        2,215
             

Total contributions receivable

     —        7,134
             

INTEREST AND OTHER RECEIVABLES

     446   
             

NET ASSETS AVAILABLE FOR BENEFITS

   $ 1,888,458    $ 2,075,732
             

See notes to financial statements.

 

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MICROSOFT CARIBBEAN, INC. 1165(e) RETIREMENT PLAN

STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS

FOR THE YEAR ENDED DECEMBER 31, 2008

 

 

ADDITIONS:

  

Contributions:

  

Participant contributions

   $ 268,458   

Employer contributions

     114,595   

Rollover contributions

     84,311   
        

Total contributions

     467,364   
        

Net investment income (loss):

  

Interest and dividends

     29,400   

Net depreciation in fair value of investments

     (655,602
        

Total net investment loss

     (626,202
        

DEDUCTIONS — Benefits paid to participants

     (28,436
        

DECREASE IN NET ASSETS

     (187,274

NET ASSETS AVAILABLE FOR BENEFITS:

  

Beginning of year

     2,075,732   
        

End of year

   $ 1,888,458   
        

See notes to financial statements.

 

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MICROSOFT CARIBBEAN, INC. 1165(E) RETIREMENT PLAN

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007, AND

FOR THE YEAR ENDED DECEMBER 31, 2008

 

 

1. DESCRIPTION OF THE PLAN

The following brief description of the Microsoft Caribbean, Inc. 1165(e) Retirement Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan agreement for more complete information.

General — The Plan is a defined contribution retirement plan covering substantially all employees of Microsoft Caribbean, Inc. (the “Sponsor”). The Plan was established effective January 1, 1999. An employee may become a participant in the Plan immediately upon becoming a regular employee. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Plan trustee is Banco Popular de Puerto Rico – Trust Division.

Retirement Date — Participants are eligible to receive a retirement distribution upon attainment of age 65. The Plan permits early retirement at age 50 if the employee has at least 10 years of participation in the Plan.

Contributions — Each year, participants may contribute up to 10% of their pre-tax compensation, as defined in the Plan, not exceeding the maximum deferral amount specified by local law. The Plan Sponsor contributes 50% of the first 6% of the base compensation that a participant contributes to the Plan.

Participant’s Accounts — Individual accounts are maintained for each Plan participant. Each participant’s account is credited with the participant’s contributions and allocations of: (a) the Plan Sponsor’s matching contributions and, (b) Plan earnings. Allocation of Plan earnings is based on the participant’s account balance, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

Investments — Participants direct the investment of their contributions into various investment options offered by the Plan. The Plan currently offers several mutual funds as well as Microsoft Corporation common stock as investment options for participants.

Vesting — Contributions become vested as follows:

Participant Contributions — Participant’s contributions and accumulated earnings vest immediately.

Sponsor Matching Contribution — Participants become 100% vested after two years of service, upon attainment of age 65, or death or disability while employed by the Sponsor.

Payment of Benefits — Upon termination of service due to death, disability or retirement, a participant or its beneficiary may elect to receive either a lump-sum amount equal to the value of the participant’s vested interest in his or her account or in periodic installments. For termination of service due to other reasons, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution.

 

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting — The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein and disclosure of contingent assets and liabilities. Actual results could differ from those estimates

Risks and Uncertainties — The Plan utilizes various investment instruments, including common stock and mutual funds. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the financial statements.

Investment Valuation and Income Recognition — The Plan’s investments are stated at fair value. Fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date. Shares of mutual funds are valued at quoted market prices, which represent the net asset value of shares held by the Plan at year-end. Microsoft Corporation common stock is valued at the closing price reported on Nasdaq Exchange on the last business day of the Plan year.

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

Management fees and operating expenses charged to the Plan for investments in mutual funds are deducted from income earned on a daily basis and are not separately reflected. Consequently, management fees and operating expenses are reflected as a reduction of investment return for such investments.

Administrative Expenses — Administrative expenses of the Plan are paid by the Plan’s sponsor as provided in the Plan document.

Payments of Benefits — Benefit payments to participants are recorded upon distribution. Amounts allocated to accounts of persons who have elected to withdraw from the Plan, but have not yet been paid, were approximately $49,000 at December 31, 2008. There were no unpaid balances for accounts of persons who elected to withdraw from the Plan at December 31, 2007.

Excess Contribution Payable — The Plan is required to return contributions received during the Plan year in excess of the IRC limits. There were no such payables as of December 31, 2008 and 2007.

New Accounting Pronouncements — The financial statements reflect the prospective adoption of Financial Accounting Standards Board (FASB) Statement No. 157, Fair Value Measurements, as of the beginning of the year ended December 31, 2008 (see Note 3). FASB Statement 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and establishes a single authoritative definition of fair value, sets a framework for measuring fair value, and requires additional disclosures about fair value measurements. The effect of the adoption of FASB Statement 157 had no impact on the statements of net assets available for benefits and statement of changes in net assets available for benefits.

 

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3. FAIR VALUE MEASUREMENTS

In accordance with FASB Statement 157, the Plan classifies its investments into Level 1, which refers to securities valued using quoted prices from active markets for identical assets; Level 2, which refers to securities not traded on an active market but for which observable market inputs are readily available; and Level 3, which refers to securities valued based on significant unobservable inputs. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth by level within the fair value hierarchy a summary of the Plan’s investments measured at fair value on a recurring basis at December 31, 2008.

 

     Fair Value Measurements at December 31, 2008, Using
     Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
   Significant
Other
Observable
Inputs (Level 2)
   Significant
Unobservable
Inputs (Level 3)
   Total

Time deposits

   $ 49,795    $ —      $ —      $ 49,795

Common Stock

     426,980            426,980

Mutual Funds

     1,411,237            1,411,237
                           

Total

   $ 1,888,012    $ —      $ —      $ 1,888,012
                           

 

4. INVESTMENTS

The following are investments as of December 31, 2008 and 2007, that represented five percent or more of the Plan’s net assets:

 

     2008    2007

Microsoft Corporation common stock

   $ 426,980    $ 770,562

AIM Basic Value A Fund

        114,431

Fidelity Advisor Growth Fund

        115,136

Julius Baer Invt. Intl. Equity A Fund

     188,257      222,777

Federated Trust U.S. Treasury Obligations Fund

     876,922      716,349

Royce Pennsylvania Mutual Fund

     95,480   

 

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The net appreciation (depreciation) in fair value of investments for the year ended December 31, 2008, including gains and losses on investments bought and sold as well as held during the year, was as follows:

 

Microsoft Corporation common stock

   $ (362,644

Blackrock Aurora Fund

     (16,477

AIM Basic Value A Fund

     (74,626

Fidelity Advisor Growth Fund

     (65,613

Goldman Sachs Tr. Core Fixed Income A Fund

     (11,915

Julius Baer Invt. Intl. Equity A Fund

     (131,051

T Rowe Price 2050 Retirement Fund

     (8

T Rowe Price 2030 Retirement Fund

     (23

T Rowe Price 2020 Retirement Fund

     (17

Royce Pennsylvania Mutual Fund

     6,747   

Vanguard Bond Index

     25   
        

Net depreciation in fair value of investments

   $ (655,602
        

 

5. PLAN TERMINATION

Although it has not expressed any intention to do so, the Sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions set forth in ERISA. In the event that the Plan is terminated, participants would become 100% vested in their accounts.

 

6. TAX STATUS

The Plan constitutes a qualified plan, exempt from income taxes under Puerto Rico income tax laws. The Plan has been amended since receiving the determination letter; however, the Sponsor and the Plan administrator believe that the Plan is currently designed and operated in compliance with the applicable requirements of the Puerto Rico Treasury Department and the Plan and related trust continue to be tax-exempt. Therefore, no provision for income taxes has been included in the Plan’s financial statements.

 

7. RELATED PARTY TRANSACTIONS

Certain general and administrative expenses are paid by the Sponsor on behalf of the Plan. The amount paid by the Sponsor on behalf of the Plan for the year ended December 31, 2008, amounted to approximately $22,000.

 

8. EXEMPT PARTY-IN-INTEREST TRANSACTIONS

At December 31, 2008 and 2007, the Plan held 21,964 and 21,645 shares, respectively, of common stock of Microsoft Corporation, the Parent Company of the Sponsor, with a cost basis of $638,349 and $633,123, respectively. During the year ended December 31, 2008, the Plan recorded dividend income of $10,314.

 

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9. NONEXEMPT PARTY-IN-INTEREST TRANSACTIONS

The Plan Sponsor remitted the January 2008, February 2008 and May 2008 participant contributions of $10,383, $10,233, and $12,708, respectively, to the trustee on February 27, 2008, March 27, 2008 and June 24, 2008, respectively, which was later than required by Department of Labor (D.O.L.) Regulation 2510.3-102.

******

 

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MICROSOFT CARIBBEAN, INC. 1165(e) RETIREMENT PLAN

FORM 5500, SCHEDULE H, PART IV, LINE 4i —

SCHEDULE OF ASSETS (HELD AT END OF YEAR)

AS OF DECEMBER 31, 2008

 

 

(a)

  

(b)

Identity of Issuer, Borrower, Lessor, or Similar Party

  

(c)

Description of Investment, Including Maturity Date,
Rate of Interest, Collateral, and Par or Maturity Value

   (d)
Cost
   (e)
Current Value
*    Microsoft Corporation    Common stock    $638,349    $426,980
   AIM Basic Value A Fund    Registered Investment Company    159,816    77,759
   Fidelity Advisor Growth Fund    Registered Investment Company    102,315    71,536
   Goldman Sachs Tr. Core Fixed Income A Fund    Registered Investment Company    85,265    72,938
   Julius Baer Invt. Intl. Equity A Fund    Registered Investment Company    306,157    188,257
   Federated Trust U.S. Treasury Obligations Fund    Registered Investment Company    876,713    876,922
*    Banco Popular de Puerto Rico    Time deposits, bearing interest at 3.129% at December 31, 2008    49,795    49,795
   T Rowe Price 2050 Retirement Fund    Registered Investment Company    3,839    3,788
   T Rowe Price 2040 Retirement Fund    Registered Investment Company    2,087    2,038
   T Rowe Price 2030 Retirement Fund    Registered Investment Company    17,059    16,610
   T Rowe Price 2020 Retirement Fund    Registered Investment Company    5,073    4,939
   Royce Pennsylvania Mutual Fund    Registered Investment Company    90,060    95,480
   Vanguard Bond Index    Registered Investment Company    945    970
               
   Total       $2,337,473    $1,888,012
               

 

* Party-in interest

 

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MICROSOFT CARIBBEAN, INC. 1165(e) RETIREMENT PLAN

FORM 5500, SCHEDULE H, PART IV, QUESTION 4a —

DELINQUENT PARTICIPANT CONTRIBUTIONS

FOR THE YEAR ENDED DECEMBER 31, 2008

 

Question 4a “Did the employer fail to transmit to the Plan any participant contributions within the time period described in 29 CFR 2510.3-102,” was answered “yes.”

 

Identity of Party Involved

  

Relationship to Plan,
Employer, or Other

Party-in-Interest

  

Description of Transactions

  Amount

Microsoft Caribbean Inc.

   Employer/Plan Sponsor    Participant contributions for employees were not funded within the time period prescribed by D.O.L. Regulation 2510.3-102. The January, 2008 participant contribution was deposited on February 27, 2008.   $10,383

Microsoft Caribbean Inc.

   Employer/Plan Sponsor    Participant contributions for employees were not funded within the time period prescribed by D.O.L. Regulation 2510.3-102. The February, 2008 participant contribution was deposited on March 27, 2008.   10,233

Microsoft Caribbean Inc.

   Employer/Plan Sponsor    Participant contributions for employees were not funded within the time period prescribed by D.O.L. Regulation 2510.3-102. The May, 2008 participant contribution was deposited on June 24, 2008.   12,708

 

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MICROSOFT CARIBBEAN, INC. 1165(e) RETIREMENT PLAN

EMPLOYEES’ PENSION PLAN

FORM 5500, SCHEDULE H, PART IV, LINE 4j

SCHEDULE OF REPORTABLE TRANSACTIONS

FOR THE YEAR ENDED DECEMBER 31, 2008

 

 

SINGLE TRANSACTIONS

                    

Identity of Party Involved

  

Description of Asset

   Purchase
Price
   Selling
Price
   # of
Transactions
   Cost of
Asset
   Current
Value of
Asset on
Transaction
Date
   Net
Gain
(Loss)
 

Blackrock Aurora Portfolio Fund

   Registered Investment Company    $ —      $ 85,584    1    $ 128,915    $ 85,584    $ (43,331

SERIES IN SAME SECURITY

                 

Identity of Party Involved

  

Description of Asset

   Purchase
Price
   Selling
Price
   # of
Transactions
   Cost of
Asset
   Current
Value of
Asset on
Transaction
Date
   Net
Gain
(Loss)
 

Federated Trust US Treasury Obligations

   Registered Investment Company    $ 197,971    $ —      29    $ 197,971    $ 197,971    $ —     

Banco Popular

   Time Deposits      613,040       37      613,040      613,040   

Banco Popular

   Time Deposits         563,605    44      563,605      563,605   

 

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