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Microsoft Corp (MSFT)
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Earnings Release FY11 Q3

Microsoft Reports Record Third-Quarter Results

Strong enterprise and Xbox momentum drive revenue growth of 13% and earnings per share of $0.61.

Redmond, Wash. — Apr. 28, 2011 — Microsoft Corp. today announced third-quarter revenue of $16.43 billion for the quarter ended Mar. 31, 2011, a 13% increase from the same period of the prior year. Operating income, net income, and diluted earnings per share for the quarter were $5.71 billion, $5.23 billion, and $0.61 per share, which represented increases of 10%, 31%, and 36%, respectively, when compared with the prior year period.  Diluted earnings per share included a $0.05 tax benefit primarily related to an agreement with the U.S. Internal Revenue Service to settle a portion of their audit of tax years 2004 to 2006.   

 “We delivered strong financial results despite a mixed PC environment, which demonstrates the strength and breadth of our businesses,” said Peter Klein, chief financial officer at Microsoft. “Consumers are purchasing Office 2010, Xbox and Kinect at tremendous rates, and businesses of all sizes are purchasing Microsoft platforms and applications.”

Microsoft Business Division revenue grew 21% year-over-year.  Since its release last spring, Office 2010 has become the fastest-selling version of Office in history, and the integrated innovation with SharePoint, Exchange, Lync and Dynamics CRM is driving significant growth for the division.

Server & Tools revenue grew 11% year-over-year, the fourth consecutive quarter of double-digit growth.  Strong business adoption of Windows Server 2008 R2, SQL Server 2008 R2, and System Center are driving record revenue and margin expansion. 

Windows 7 remains the fastest selling operating system in history with 350 million licenses sold.  Revenue for the segment was down 4% in the third quarter, in line with the PC trends, excluding prior year launch impact.

Online Services Division revenue grew 14% year-over-year primarily driven by increases in search revenue.  Bing’s US search share increased to 13.9% this quarter. 

Entertainment & Devices Division grew 60% year-over-year, fueled by Kinect for Xbox 360, the fastest-selling consumer electronics device in history, continued strong Xbox 360 console sales and growth of Xbox Live.

“We delivered strong third quarter revenue from our business customers, driven by outstanding performance from Windows Server, SQL database, SharePoint, Exchange, Lync and increasingly our cloud services,” said Kevin Turner, chief operating officer at Microsoft.   “Office had another huge quarter, again exceeding everyone’s expectations, and the addition of Office 365 will make our cloud productivity solutions even more compelling. We continue to see strong adoption of our cloud-based services among the Fortune 500.”

Business Outlook

Microsoft reaffirms operating expense guidance of $26.9 billion to $27.3 billion for the full year ending June 30, 2011.  Microsoft also offers preliminary fiscal year 2012 operating expense guidance of 3% to 5% growth from the mid-point of fiscal year 2011 guidance, or $28.0 billion to $28.6 billion.

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. 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 Apr. 28, 2012.

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 Apr. 28, 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. 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 March 31,

Nine Months Ended March 31,

 

2011

 

2010

 

2011

 

2010

Revenue

 $   16,428

 $14,503

 $    52,576

 $46,445

Operating expenses:

      Cost of revenue

3,897

2,755

11,869

9,225

      Research and development

2,269

2,220

6,650

6,364

      Sales and marketing

3,393

3,203

10,024

9,612

      General and administrative

1,160

1,152

3,043

3,076

            Total operating expenses

10,719

9,330

31,586

28,227

Operating income

5,709

5,173

20,990

18,168

Other income

316

168

762

821

Income before income taxes

6,025

5,341

21,752

18,989

Provision for income taxes

793

1,335

4,476

4,747

Net income

$   5,232

$  4,006

$    17,276

$14,242

Earnings per share:

      Basic

 $     0.62

 $    0.46

 $        2.03

 $    1.61

      Diluted

 $     0.61

 $    0.45

 $        2.01

 $    1.59

Weighted average shares outstanding:

      Basic

8,420

8,767

8,511

8,846

      Diluted

8,510

8,876

8,609

8,955

Cash dividends declared per
   common share

 $      0.16

 

 $    0.13

 

 $        $0.48

 

 $    $0.39


MICROSOFT CORPORATION

BALANCE SHEETS

(In millions)

 

March 31,
2011
(Unaudited)

 

June 30,
2010(1)

Assets

Current assets:

      Cash and cash equivalents

 $           7,021

 $      5,505

      Short-term investments (including securities loaned of
    $1,171 and $62)

43,129

31,283

            Total cash, cash equivalents, and short-term
      investments

50,150

36,788

      Accounts receivable, net of allowance for doubtful accounts of $304 and
$375

10,033

13,014

      Inventories

1,056

740

      Deferred income taxes

2,586

2,184

      Other

2,438

2,950

            Total current assets

66,263

55,676

Property and equipment, net of accumulated depreciation of $9,564 and
$8,629

7,969

7,630

Equity and other investments

10,748

7,754

Goodwill

12,554

12,394

Intangible assets, net

840

1,158

Other long-term assets

1,353

1,501

            Total assets

 $       99,727

 $  86,113

Liabilities and stockholders' equity

Current liabilities:

      Accounts payable

 $           3,829

 $      4,025

      Short-term debt

0

1,000

      Accrued compensation

2,917

3,283

      Income taxes

839

1,074

      Short-term unearned revenue

11,887

13,652

      Securities lending payable

1,245

182

      Other

3,325

2,931

      Total current liabilities

24,042

26,147

Long-term debt

11,915

4,939

Long-term unearned revenue

1,132

1,178

Deferred income taxes

1,185

229

Other long-term liabilities

8,001

7,445

      Total liabilities

46,275

39,938

Commitments and contingencies

Stockholders' equity:

      Common stock and paid-in capital - shares authorized 24,000;
outstanding 8,431 and 8,668

63,234

62,856

Retained deficit, including accumulated other comprehensive income of
$1,810 and $1,055

(9,782)

(16,681)

      Total stockholders' equity

53,452

46,175

                      Total liabilities and stockholders' equity

 $       99,727

 $  86,113

(1) Derived from audited financial statements.



MICROSOFT CORPORATION

CASH FLOWS STATEMENTS

(In millions)(Unaudited)

Three Months Ended March 31,

Nine Months Ended March 31,

 

2011

 

2010

 

2011

 

2010

Operations

      Net income

 $   5,232

 $  4,006

 $    17,276

 $14,242

      Adjustments to reconcile net income to net cash from operations:

            Depreciation, amortization, and other

720

694

2,077

1,955

            Stock-based compensation expense

541

481

1,622

1,409

            Net recognized gains on
      investments and derivatives

(122)

(68)

(377)

(322)

            Excess tax benefits from
      stock-based compensation

(5)

(14)

(14)

(38)

            Deferred income taxes

(59)

(241)

(324)

263

            Deferral of unearned revenue

6,616

6,087

19,331

19,692

            Recognition of unearned revenue

(7,026)

(6,395)

(21,189)

(21,758)

      Changes in operating assets and liabilities:

            Accounts receivable

3,031

1,947

3,435

1,906

           Inventories

(170)

77

(258)

216

            Other current assets

(618)

(361)

(487)

90

            Other long-term assets

(8)

(81)

172

(143)

            Accounts payable

(51)

122

(235)

89

            Other current liabilities

237

775

(1,174)

(146)

            Other long-term liabilities

354

364

1,197

1,014

            Net cash from operations

8,672

7,393

21,052

18,469

Financing

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

0

(349)

(186)

(446)

      Proceeds from issuance of debt, maturities longer
            than 90 days

2,239

851

6,960

2,592

      Repayments of debt, maturities longer than 90 days

0

(502)

(814)

(1,898)

      Common stock issued

1,405

422

2,242

1,399

      Common stock repurchased

(848)

(2,023)

(10,299)

(7,430)

      Common stock cash dividends paid

(1,349)

(1,139)

(3,830)

(3,448)

      Excess tax benefits from
   stock-based compensation

5

14

14

38

      Other

(15)

0

(40)

0

            Net cash from (used in) financing

1,437

(2,726)

(5,953)

(9,163)

Investing

      Additions to property and
   equipment

(658)

(408)

(1,713)

(1,219)

      Acquisition of companies, net of cash acquired

0

(143)

(69)

(245)

      Purchases of investments

(14,394)

(11,217)

(27,707)

(25,994)

      Maturities of investments

2,286

1,054

4,992

6,448

      Sales of investments

5,738

4,927

9,768

12,705

      Securities lending payable

(111)

(117)

1,063

1,110

            Net cash used in investing

(7,139)

(5,904)

(13,666)

(7,195)

Effect of exchange rates on cash
   and cash equivalents

28

(30)

83

(2)

Net change in cash and cash
   equivalents

2,998

(1,267)

1,516

2,079

Cash and cash equivalents,
   beginning of period

4,023

9,422

5,505

6,076

Cash and cash equivalents, end of
   period

 $     7,021

 $  8,155

 $      7,021

 $  8,155



MICROSOFT CORPORATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Revenue and Operating Income (Loss)

(In millions)(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

Nine Months Ended March 31,

 

 

2011

 

2010

 

2011

 

2010

Revenue

 

 

 

 

Windows & Windows Live Division

 $     4,445

 

 $  4,650

 

 $   14,284

 

 $14,713

Server and Tools

4,104

 

3,706

 

12,453

 

11,229

Online Services Division

648

 

566

 

1,866

 

1,633

Microsoft Business Division

5,252

 

4,341

 

16,409

 

13,701

Entertainment and Devices Division

1,935

 

1,210

 

7,428

 

5,024

Unallocated and other

44

 

30

 

136

 

145

Consolidated

$   16,428

 

$14,503

 

$   52,576

 

$46,445

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

 

 

 

 

 

 

Windows & Windows Live Division

 $     2,764

 

 $  3,073

 

 $   9,338

 

 $9,968

Server and Tools

1,419

 

1,270

 

4,834

 

3,979

Online Services Division

(726)

 

(709)

 

(1,829)

 

(1,649)

Microsoft Business Division

3,165

 

2,542

 

10,506

 

8,285

Entertainment and Devices Division

225

 

150

 

1,292

 

790

Corporate-level activity

(1,138)

 

(1,153)

 

(3,151)

 

(3,205)

Consolidated

 $   5,709

 

 $5,173

 

 $   20,990

 

 $18,168

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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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.