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Earnings Release FY11 Q2

Microsoft Reports Record $0.77 Earnings Per Share in Second Quarter

Holiday sales and business demand drive record revenue.

 

Redmond, Wash. — Jan. 27, 2011 — Microsoft Corp. today announced record second-quarter revenue of $19.95 billion for the quarter ended Dec. 31, 2010. Operating income, net income and diluted earnings per share for the quarter were $8.17 billion, $6.63 billion and $0.77 per share, respectively.

Prior year results reflect the recognition of $1.71 billion of deferred revenue relating to the Windows 7 Upgrade Option program and sales of Windows 7 before general availability in October 2009. Second-quarter growth rates for revenue and earnings per share were 5% and 4%, respectively. Without the deferred recognition in the prior year, second-quarter growth rates for revenue and earnings per share were 15% and 28%, respectively. 

(In millions, except per share amounts)

Three Months Ended December 31,

 

 

 

2010 As Reported (GAAP)

2009 As Reported (GAAP)

Deferred Revenue Recognition

2009 As Adjusted (Non-GAAP)

Percentage Change

 (GAAP)

Percentage Change (Non-GAAP)

Revenue

$19,953

$19,022

$1,711

$17,311

5%

15%

Operating Income

$8,165

$8,513

$1,711

$6,802

-4%

20%

Diluted Earnings Per Share

$0.77

$0.74

$0.14

$0.60

4%

28%

 

 “We are enthusiastic about the consumer response to our holiday lineup of products, including the launch of Kinect. The 8 million units of Kinect sensors sold in just 60 days far exceeded our expectations,” said Peter Klein, chief financial officer at Microsoft. “The pace of business spending, combined with strong consumer demand, led to another quarter of operating margin expansion and solid earnings per share growth.”

Among the factors driving Microsoft’s record revenues and earnings per share was the 55% growth in revenue for the Entertainment & Devices Division, as the success of the Kinect sensor boosted sales of Xbox 360 consoles, Xbox Live subscriptions and Xbox games.

Microsoft Business Division revenue grew 24% year-over-year.  Office 2010 is the fastest-selling consumer version of Office in history, with license sales over 50% ahead of Office 2007 over an equivalent period following launch.

“Business demand for our productivity and infrastructure products and cloud solutions is strong. Office had a huge quarter, exceeding everyone’s expectations, and our roadmap for cloud productivity with Office 365 makes products like SharePoint, Exchange, Lync and Dynamics CRM even more attractive to our customers,” said Kevin Turner, chief operating officer at Microsoft. “Windows 7 continues to be the fastest-growing operating system in history, and our recent System on a Chip announcement demonstrates our commitment that Windows will have the power and flexibility to run everywhere and on every device.”

Among the other product and business highlights Microsoft reported in the quarter:

·         Microsoft announced it has now sold over 300 million Windows 7 licenses, and Windows 7 is now running on over 20% of Internet-connected PCs. 

·         Windows Phone 7 launched during the quarter in 30 countries and on 60 operators and nine different devices. Microsoft announced developers are adding Windows Phone 7 applications to the marketplace at a rate of over 100 per day.

·         Bing completed the integration of Yahoo! search in the U.S. and Canada and continues to gain share.

·         Windows Azure developer momentum continued this quarter, with Pixar Animation Studios, ADP with NVoicePay and others demonstrating compelling uses of the platform.

·         Internet Explorer 9 is Microsoft’s fastest downloaded beta browser of all time with over 20 million downloads to date.

·         At International CES 2011 in early January, Microsoft announced that the next version of Windows will support System on a Chip architectures.

·         The company announced that during the quarter, it bought back $5 billion in stock and declared $1.3 billion in dividends.

Business Outlook

Microsoft reaffirms operating expense guidance of $26.9 billion to $27.3 billion for the full year ending June 30, 2011.

Webcast Details

Peter Klein, chief financial officer, Frank Brod, chief accounting officer, and Bill Koefoed, 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 Jan. 27, 2012.

Adjusted Financial Results and Non-GAAP Measures

In addition to financial results reported in accordance with generally accepted accounting principles (GAAP), we have provided certain non-GAAP financial information to aid investors in better understanding the company’s performance. For revenue, operating income and earnings per share growth, we excluded the impact of deferred revenue recognized in the prior year fiscal quarter relating to the Windows 7 Upgrade Option program and sales of Windows 7 before general availability in October 2009.  Presenting these measures without the impact of this item gives additional insight into operational performance and helps clarify trends affecting the company’s business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance. These non-GAAP financial measures provided should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

To aid comparability of prior results, we have also recast certain prior period amounts within our Form 10-Q that conforms to the way we internally managed and monitored segment performance during the current fiscal year. In addition to the reconciliation in this release, our supplementary earnings slide deck at http://www.microsoft.com/investor contains a reconciliation of adjusted financial results and a reconciliation between reported and recast segment results.

About Microsoft

Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services 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:

·         execution and competitive risks in transitioning to cloud-based computing;

·         challenges to Microsoft’s business model;

·         intense competition in all of Microsoft’s markets;

·         Microsoft’s continued ability to protect 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;

·         actual or perceived security vulnerabilities in Microsoft products that could reduce revenue or lead to liability;

·         improper disclosure of personal data could result in liability and harm to Microsoft’s reputation;

·         outages and disruptions of services provided to customers directly or through third parties if Microsoft fails to maintain an adequate operations infrastructure;

·         government litigation and regulation affecting how Microsoft designs and markets its products;

·         Microsoft’s ability to attract and retain talented employees;

·         delays in product development and related product release schedules;

·         significant business investments that may not gain customer acceptance and produce offsetting increases in revenue;

·         unfavorable changes in general economic conditions, disruption of our partner networks or sales channels, or the availability of credit that affect demand for Microsoft’s products and services or the value of our investment portfolio;

·         adverse results in legal disputes;

·         unanticipated tax liabilities;

·         quality or supply problems in Microsoft’s consumer hardware or other vertically integrated hardware and software products;

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

·         exposure to increased economic and regulatory uncertainties from operating a global business;

·         geopolitical conditions, natural disaster, cyberattack or other catastrophic events disrupting Microsoft’s business; and

·         acquisitions and joint ventures that adversely affect the business.

For further information regarding 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 Jan. 27, 2011. 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:

Bill Koefoed, general manager, Investor Relations, (425) 706-3703

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,

 

2010

 

2009

 

2010

 

2009

Revenue

 $   19,953

 $19,022

 $    36,148

 $31,942

Operating expenses:

      Cost of revenue

4,833

3,628

7,972

6,470

      Research and development

2,185

2,079

4,381

4,144

      Sales and marketing

3,825

3,619

6,631

6,409

      General and administrative

945

1,183

1,883

1,924

      Total operating expenses

11,788

10,509

20,867

18,947

Operating income

8,165

8,513

15,281

12,995

Other income

332

370

446

653

Income before income taxes

8,497

8,883

15,727

13,648

Provision for income taxes

1,863

2,221

3,683

3,412

Net income

$   6,634

$  6,662

$    12,044

$10,236

Earnings per share:

   Basic

 $     0.78

 $    0.75

 $        1.41

 $    1.15

   Diluted

 $     0.77

 $    0.74

 $        1.39

 $    1.14

Weighted average shares outstanding:

      Basic

8,497

8,856

8,555

8,885

      Diluted

8,570

8,951

8,646

8,975

Cash dividends declared per
   common share

 $      0.16

 

 $    0.13

 

 $        0.32

 

 $    0.26


MICROSOFT CORPORATION

BALANCE SHEETS

(In millions)

 

December 31,
2010

 

June 30,
2010(1)

(Unaudited)

Assets

Current assets:

      Cash and cash equivalents

 $           4,023

 $      5,505

      Short-term investments (including securities loaned of $982 and $62)

37,229

31,283

      Total cash, cash equivalents, and short-term investments
     

41,252

36,788

Accounts receivable, net of allowance for doubtful accounts of $317 and
$375

12,874

13,014

Inventories

861

740

Deferred income taxes

2,548

2,184

Other

2,149

2,950

      Total current assets

59,684

55,676

Property and equipment, net of accumulated depreciation of $9,279 and
$8,629

7,799

7,630

Equity and other investments

10,022

7,754

Goodwill

12,502

12,394

Intangible assets, net

992

1,158

Other long-term assets

1,307

1,501

      Total assets

 $       92,306

 $  86,113

Liabilities and stockholders' equity

Current liabilities:

      Accounts payable

 $           3,863

 $      4,025

      Short-term debt

0

1,000

      Accrued compensation

2,402

3,283

      Income taxes

1,439

1,074

      Short-term unearned revenue

12,063

13,652

      Securities lending payable

1,355

182

      Other

3,190

2,931

      Total current liabilities

24,312

26,147

Long-term debt

9,671

4,939

Long-term unearned revenue

1,354

1,178

Deferred income taxes

826

229

Other long-term liabilities

7,662

7,445

      Total liabilities

43,825

39,938

Commitments and contingencies

Stockholders' equity:

Common stock and paid-in capital - shares authorized 24,000;     
outstanding 8,403 and 8,668

61,646

62,856

Retained deficit, including accumulated other comprehensive income of
$1,697 and $1,055

(13,165)

(16,681)

      Total stockholders' equity

48,481

46,175

           Total liabilities and stockholders' equity

 $       92,306

 $  86,113

(1) Derived from audited financial statements



MICROSOFT CORPORATION

CASH FLOWS STATEMENTS

(In millions)(Unaudited)

Three Months Ended December 31,

Six Months Ended December 31,

 

2010

 

2009

 

2010

 

2009

Operations

      Net income

 $   6,634

 $  6,662

 $    12,044

 $10,236

      Adjustments to reconcile net income to net cash from operations:

            Depreciation, amortization, and other

663

615

1,357

1,261

            Stock-based compensation expense

553

485

1,081

928

            Net recognized gains on
      investments and derivatives

(226)

(188)

(255)

(254)

            Excess tax benefits from
      stock-based compensation

(4)

(15)

(9)

(24)

            Deferred income taxes

(117)

550

(265)

504

            Deferral of unearned revenue

6,834

6,926

12,715

13,605

            Recognition of unearned revenue

(7,301)

(9,126)

(14,163)

(15,363)

      Changes in operating assets and liabilities:

            Accounts receivable

(3,270)

(2,789)

404

(41)

           Inventories

380

558

(88)

139

            Other current assets

(77)

686

131

451

            Other long-term assets

118

16

180

(62)

            Accounts payable

216

3

(184)

(33)

            Other current liabilities

(500)

282

(1,411)

(921)

            Other long-term liabilities

283

304

843

650

            Net cash from operations

4,186

4,969

12,380

11,076

Financing

      Short-term debt repayments, maturities of 90 days or less, net

(1000)

(475)

(186)

(97)

      Proceeds from issuance of debt, maturities longer
            than 90 days

0

1,046

4,721

1,741

      Repayments of debt, maturities longer than 90 days

0

(573)

(814)

(1,396)

      Common stock issued

660

729

837

977

      Common stock repurchased

(5,052)

(3,867)

(9,451)

(5,407)

      Common stock cash dividends paid

(1,363)

(1,152)

(2,481)

(2,309)

      Excess tax benefits from
   stock-based compensation

4

15

9

24

      Other

0

0

(25)

0

            Net cash used in financing

(6,751)

4,277

(7,390)

(6,467)

Investing

      Additions to property and
   equipment

(491)

(376)

(1,055)

(811)

      Acquisition of companies, net of cash acquired

(69)

(63)

(69)

(102)

      Purchases of investments

(5,896)

(4,287)

(13,313)

(14,777)

      Maturities of investments

1,836

1,896

2,706

5,394

      Sales of investments

2,603

3,361

4,030

7,778

      Securities lending payable

447

(623)

1,174

1,227

            Net cash used in investing

(1,570)

(92)

(6,527)

(1,291)

Effect of exchange rates on cash
   and cash equivalents

(3)

(1)

55

28

Net change in cash and cash
   equivalents

(4,138)

599

(1,482)

3,346

Cash and cash equivalents,
   beginning of period

8,161

8,823

5,505

6,076

Cash and cash equivalents, end of
   period

 $     4,023

 $  9,422

 $      4,023

 $  9,422



MICROSOFT CORPORATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Revenue and Operating Income (Loss)

(In millions)(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

Six Months Ended December 31,

 

 

2010

 

2009

 

2010

 

2009

Revenue

 

 

 

Windows & Windows Live Division

 $     5,054

 

 $  7,193

 

 $   9,839

 

 $10,063

Server and Tools

4,390

 

3,978

 

8,349

 

7,523

Online Services Division

691

 

579

 

1,218

 

1,067

Microsoft Business Division

6,032

 

4,864

 

11,157

 

9,360

Entertainment and Devices Division

3,698

 

2,381

 

5,493

 

3,815

Unallocated and other

88

 

27

 

92

 

114

Consolidated

$   19,953

 

$19,022

 

$   36,148

 

$31,942

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

 

 

 

 

 

 

Windows & Windows Live Division

 $     3,251

 

 $  5,417

 

 $   6,573

 

 $6,894

Server and Tools

1,776

 

1,464

 

3,415

 

2,709

Online Services Division

(543)

 

(463)

 

(1,103)

 

(940)

Microsoft Business Division

3,965

 

2,947

 

7,340

 

5,744

Entertainment and Devices Division

679

 

365

 

1,067

 

640

Corporate-level activity

(963)

 

(1,217)

 

(2,011)

 

(2,052)

Consolidated

 $   8,165

 

 $8,513

 

 $   15,281

 

 $12,995

IMPORTANT NOTICE TO USERS (summary only, click here  for full text of notice); All information is unaudited unless otherwise noted or accompanied by an audit opinion and is subject to the more comprehensive information contained in our SEC reports and filings. We do not endorse third-party information. All information speaks as of the last fiscal quarter or year for which we have filed a Form 10-K or 10-Q, or for historical information the date or period expressly indicated in or with such information. We undertake no duty to update the information. Forward-looking statements are subject to risks and uncertainties described in our  Forms 10-Q and 10-K.
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FY11 Earnings Release Schedule

Q3-Thursday, April 28
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Stock InformationMicrosoft Corp (MSFT)
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IMPORTANT NOTICE TO USERS (summary only, click here  for full text of notice); All information is unaudited unless otherwise noted or accompanied by an audit opinion and is subject to the more comprehensive information contained in our SEC reports and filings. We do not endorse third-party information. All information speaks as of the last fiscal quarter or year for which we have filed a Form 10-K or 10-Q, or for historical information the date or period expressly indicated in or with such information. We undertake no duty to update the information. Forward-looking statements are subject to risks and uncertainties described in our  Forms 10-Q and 10-K.