Microsoft Reports Record Third-Quarter Revenue

Strong business demand drives double-digit operating income growth.

Microsoft Corp. announced quarterly revenue of $17.41 billion for the quarter ended Mar. 31, 2012, a 6% increase from the prior year period. Operating income was $6.37 billion, up 12% from the prior year period.

Net income and diluted earnings per share for the quarter were $5.11 billion and $0.60 per share, compared with $5.23 billion and $0.61 per share, respectively, in the prior year period. Prior year net income and diluted earnings per share included a $461 million or $0.05 per share tax benefit primarily related to a tax settlement with the U.S. Internal Revenue Service.

“We’re driving toward exciting launches across the entire company, while delivering strong financial results,” said Steve Ballmer, chief executive officer at Microsoft. “With the upcoming release of new Windows 8 PCs and tablets, the next version of Office, and a wide array of products and services for the enterprise and consumers, we will be delivering exceptional value to all our customers in the year ahead.”

The Server & Tools business posted $4.57 billion in third-quarter revenue, a 14% increase from the prior year period, driven by double-digit revenue growth in SQL Server and more than 20% growth in System Center revenue.

The Microsoft Business Division reported $5.81 billion in third-quarter revenue, a 9% increase from the prior year period, reflecting the continued strength of Office 2010 with businesses and consumers. Dynamics posted an 11% revenue increase from the prior year period, with Dynamics CRM revenue growing more than 30%.

The Windows and Windows Live Division posted revenue of $4.62 billion, a 4% increase from the prior year period.  Strong Windows 7 adoption continued with enterprise desktops on Windows 7 now up to 40% worldwide.

“We saw strong demand for our business desktop and infrastructure offerings,” said Peter Klein, chief financial officer at Microsoft. “Solid revenue growth and continued cost discipline drove double-digit operating income growth.”

The Online Services Division reported revenue of $707 million, a 6% increase from the prior year period, and operating loss improvement of approximately $300 million.

The Entertainment & Devices Division posted revenue of $1.62 billion, a decrease of 16% from the prior period due to a soft gaming console market. Xbox remained the top-selling console in the U.S. for the 15th consecutive month, and the company announced new television content partners and experiences for its 40 million Xbox LIVE members.

 “We continue to execute well across our businesses, and we are seeing robust demand for our enterprise products and services,” said Kevin Turner, chief operating officer at Microsoft. “Our investments and offerings in the database platform and public, private, and hybrid cloud are helping our customers transform their operations to meet today’s evolving business demands.”

Business Outlook

Microsoft is revising operating expense guidance downward and now offers a range of $28.3 billion to $28.7 billion for the full year ending June 30, 2012. Microsoft also offers preliminary fiscal year 2013 operating expense guidance of $30.3 billion to $30.9 billion, representing 6% to 8% growth from the mid-point of fiscal year 2012 guidance.

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. 19, 2013.

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 that 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, joint ventures and strategic alliances 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. 19, 2012. 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) 706-4400

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 March 31,
Nine Months Ended
March 31,

2012

2011

2012

2011
Revenue
 $  17,407
 $16,428
 $  55,664
 $  52,576
Operating expenses:
  Cost of revenue
       3,952
     3,897
     13,367
     11,869
  Research and development
       2,517
     2,269
       7,217
      6,650
  Sales and marketing
       3,414
     3,393
     10,076
     10,024
  General and administrative
       1,150
     1,160
       3,433
      3,043
    Total operating expenses
     11,033
   10,719
     34,093
     31,586
Operating income
       6,374
     5,709
     21,571
     20,990
Other income (expense)
          (11)
       316
          337
         762
Income before income taxes
       6,363
     6,025
     21,908
     21,752
Provision for income taxes
       1,255
       793
       4,438
      4,476
Net income
 $    5,108
 $  5,232
 $  17,470
 $  17,276
Earnings per share:
  Basic
 $      0.61
 $    0.62
 $      2.08
 $     2.03
  Diluted
 $      0.60
 $    0.61
 $      2.05
 $     2.01
Weighted average shares outstanding:
  Basic
       8,401
     8,420
       8,398
      8,511
  Diluted
       8,498
     8,510
       8,502
      8,609
Cash dividends declared per common
     share
 $      0.20

 $    0.16

 $      0.60

 $     0.48


MICROSOFT CORPORATION
BALANCE SHEETS
(In millions)(Unaudited)

March 31,
2012

June 30,
2011(1)
Assets
Current assets:
  Cash and cash equivalents
 $             6,388
 $    9,610
  Short-term investments (including securities loaned
    of $1,181 and $1,181)
              53,141
     43,162
    Total cash, cash equivalents, and short-term
      investments
              59,529
     52,772
  Accounts receivable, net of allowance for doubtful
    accounts of $322 and $333
              10,961
     14,987
  Inventories
                1,412
      1,372
  Deferred income taxes
                2,350
      2,467
  Other
                2,608
      3,320
    Total current assets
              76,860
     74,918
Property and equipment, net of accumulated
  depreciation of $10,952 and $9,829
                8,225
      8,162
Equity and other investments
                9,068
     10,865
Goodwill
              19,698
     12,581
Intangible assets, net
                2,756
         744
Other long-term assets
                1,403
      1,434
        Total assets
 $         118,010
 $108,704
Liabilities and stockholders' equity
Current liabilities:
  Accounts payable
 $             3,790
 $    4,197
  Accrued compensation
                3,272
      3,575
  Income taxes
                   958
         580
  Short-term unearned revenue
              13,929
     15,722
  Securities lending payable
                1,210
      1,208
  Other
                3,011
      3,492
    Total current liabilities
              26,170
     28,774
Long-term debt
              11,938
     11,921
Long-term unearned revenue
                1,262
      1,398
Deferred income taxes
                1,456
      1,456
Other long-term liabilities
                8,525
      8,072
    Total liabilities
              49,351
     51,621
Commitments and contingencies
Stockholders' equity:
  Common stock and paid-in capital - shares authorized
    24,000; outstanding 8,400 and 8,376
              65,273
     63,415
  Retained earnings (deficit), including accumulated other
    comprehensive income of $1,332 and $1,863
                3,386
     (6,332)
    Total stockholders' equity
              68,659
     57,083
        Total liabilities and stockholders' equity
 $         118,010
 $108,704
(1) Derived from audited financial statements.


MICROSOFT CORPORATION
CASH FLOW STATEMENTS
(In millions) (Unaudited)
Three Months Ended March 31,
Nine Months Ended
March 31,

2012

2011

2012

2011
Operations
Net income
 $    5,108
 $  5,232
 $  17,470
 $  17,276
Adjustments to reconcile net income
  to net cash from operations:
  Depreciation, amortization, and
    other
          766
       720
       2,170
      2,077
  Stock-based compensation
    expense
          591
       541
       1,724
      1,622
  Net recognized losses (gains) on
    investments and derivatives
            68
      (122)
          (74)
        (377)
  Excess tax benefits from
    stock-based compensation
          (10)
         (5)
          (84)
         (14)
  Deferred income taxes
        (134)
        (59)
          282
        (324)
  Deferral of unearned revenue
       8,142
     6,616
     21,825
     19,331
  Recognition of unearned revenue
     (8,283)
   (7,026)
   (23,993)
   (21,189)
  Changes in operating assets and
    liabilities:
    Accounts receivable
       2,770
     3,031
       3,851
      3,435
    Inventories
          (50)
      (170)
          (79)
        (258)
    Other current assets
            73
      (618)
          938
        (487)
    Other long-term assets
              9
         (8)
          (36)
         172
    Accounts payable
        (114)
        (51)
        (380)
        (235)
    Other current liabilities
          492
       237
        (107)
     (1,174)
    Other long-term liabilities
          166
       354
          442
      1,197
        Net cash from operations
       9,594
     8,672
     23,949
     21,052
Financing
Short-term debt repayments,
  maturities of 90 days or less, net
 0
 0
 0
        (186)
Proceeds from issuance of debt,
  maturities longer than 90 days
 0
     2,239
 0
      6,960
Repayments of debt, maturities
  longer than 90 days
 0
 0
 0
        (814)
Common stock issued
       1,091
     1,405
       1,635
      2,242
Common stock repurchased
     (1,023)
      (848)
     (3,999)
   (10,299)
Common stock cash dividends paid
     (1,683)
   (1,349)
     (4,707)
     (3,830)
Excess tax benefits from
  stock-based compensation
            10
           5
            84
           14
Other
 0
        (15)
 0
         (40)
        Net cash from (used in)
          financing
     (1,605)
     1,437
     (6,987)
     (5,953)
Investing
Additions to property and equipment
        (749)
      (658)
     (1,683)
     (1,713)
Acquisition of companies, net of
  cash acquired, and purchases of
  intangible and other assets
          (84)
 0
     (9,586)
         (69)
Purchases of investments
   (23,951)
 (14,394)
   (45,297)
   (27,707)
Maturities of investments
       4,236
     2,286
     13,122
      4,992
Sales of investments
       7,946
     5,738
     23,317
      9,768
Securities lending payable
          361
      (111)
              3
      1,063
        Net cash used in investing
   (12,241)
   (7,139)
   (20,124)
   (13,666)
Effect of exchange rates on cash
  and cash equivalents
            30
         28
          (60)
           83
Net change in cash and cash
  equivalents
     (4,222)
     2,998
     (3,222)
      1,516
Cash and cash equivalents,
  beginning of period
     10,610
     4,023
       9,610
      5,505
Cash and cash equivalents, end of
  period
 $    6,388
 $  7,021
 $    6,388
 $    7,021


MICROSOFT CORPORATION















SEGMENT REVENUE AND OPERATING INCOME (LOSS)
(In millions) (Unaudited)









Three Months Ended
March 31,

Nine Months Ended
March 31,



2012

2011

2012

2011
Revenue







Windows & Windows Live Division
 $    4,624

 $  4,447

 $  14,228

 $  14,290
Server and Tools
       4,572

     4,007

     13,594

     12,156
Online Services Division
          707

       667

       2,132

      1,927
Microsoft Business Division
       5,814

     5,329

     17,700

     16,641
Entertainment and Devices Division
       1,616

     1,935

       7,814

      7,428
Unallocated and other
            74

         43

          196

         134
  Consolidated
 $  17,407

 $16,428

 $  55,664

 $  52,576








Operating income (loss)







Windows & Windows Live Division
 $    2,952

 $  2,792

 $    9,063

 $    9,303
Server and Tools
       1,738

     1,352

       5,336

      4,604
Online Services Division
        (479)

      (776)

     (1,449)

     (1,912)
Microsoft Business Division
       3,770

     3,313

     11,619

     10,896
Entertainment and Devices Division
        (229)

       210

          627

      1,244
Corporate-level activity
     (1,378)

   (1,182)

     (3,625)

     (3,145)
  Consolidated
 $    6,374

 $  5,709

 $  21,571

 $  20,990