Microsoft Reports 27% Revenue Growth; Fastest First Quarter Since 1999
REDMOND, Wash., Oct. 25 /PRNewswire-FirstCall/ — Microsoft Corp. today announced revenue of $13.76 billion for the quarter ended September 30, 2007, a 27% increase over the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $5.92 billion, $4.29 billion and $0.45, respectively.
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“This fiscal year is off to an outstanding start with the fastest revenue growth of any first quarter since 1999,” said Chris Liddell, chief financial officer at Microsoft. “Operating income growth of over 30% also reflects our ability to translate revenue into profits while making strategic investments for the future.”
Microsoft’s businesses of Client, Microsoft Business Division, and Server and Tools grew combined revenue in excess of 20%, and experienced robust demand for Windows Vista, the 2007 Microsoft Office system, Windows Server, and SQL Server.
“Customer demand for Windows Vista this quarter continued to build with double-digit growth in multi-year agreements by businesses and with the vast majority of consumers purchasing premium editions,” said Kevin Johnson, president of the Platform and Services Division at Microsoft.
During the quarter, Microsoft’s two consumer focused divisions passed milestones with the successful close of the company’s largest ever acquisition, aQuantive, and Halo 3 achieving the biggest entertainment launch day in history.
“Backed by an amazing product line-up, our sales force, marketing teams, and partners delivered another excellent quarter,” said Kevin Turner, chief operating officer at Microsoft.
Business Outlook
Microsoft management offers the following guidance for the quarter ending December 31, 2007:
— Revenue is expected to be in the range of $15.6 billion to $16.1 billion. — Operating income is expected to be in the range of $5.9 billion to $6.1 billion. — Diluted earnings per share are expected to be in the range of $0.44 to $0.46.
Management offers the following guidance for the full fiscal year ending June 30, 2008:
— Revenue is expected to be in the range of $58.8 billion to $59.7 billion. — Operating income is expected to be in the range of $23.3 billion to $23.7 billion. — Diluted earnings per share are expected to be in the range of $1.78 to $1.81.
The foregoing full fiscal year guidance includes approximately $85 million of estimated integration costs and in-process research and development expenses, or a $0.01 impact to diluted earnings per share, due to the acquisition of aQuantive.
Webcast Details
Microsoft will hold an audio webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today with Chris Liddell, senior vice president and chief financial officer, Frank Brod, corporate vice president and chief accounting officer, and Colleen Healy, general manager of Investor Relations, 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/msft. The webcast will be available for replay through the close of business on October 25, 2008.
About Microsoft
Founded in 1975, Microsoft 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:
— 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; — 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 produce offsetting increases in revenue; — changes in general economic conditions that affect demand for computer hardware or software; — adverse results in legal disputes; — unanticipated tax liabilities; — Microsoft’s consumer hardware products may experience quality or supply problems; — impairment of goodwill or amortizable intangible assets causing a charge to earnings; — exposure to increased economic and regulatory uncertainties from operating a global business; — geo-political conditions, natural disaster, cyber-attack or other catastrophic event disrupting Microsoft’s business; — acquisitions and joint ventures that adversely affect the business; — improper disclosure of personal data could result in liability and harm to Microsoft’s reputation; — sales channel disruption such as the bankruptcy of a major distributor; and — implementation of operating cost structures that align with revenue growth.
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/msft.
All information in this release is as of October 25, 2007. 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.
Microsoft Corporation Income Statements (In millions, except per share amount) (Unaudited) Three Months Ended September 30, 2007 2006 Revenue $13,762 $10,811 Operating expenses: Cost of revenue 2,675 1,696 Research and development 1,837 1,786 Sales and marketing 2,614 2,191 General and administrative 718 664 Total operating expenses 7,844 6,337 Operating income 5,918 4,474 Investment income and other 298 567 Income before income taxes 6,216 5,041 Provision for income taxes 1,927 1,563 Net income $4,289 $3,478 Earnings per share: Basic $0.46 $0.35 Diluted $0.45 $0.35 Weighted average shares outstanding: Basic 9,380 9,929 Diluted 9,513 10,010 Cash dividends declared per common share $0.11 $0.10 Microsoft Corporation Balance Sheets (In millions) September 30, June 30, 2007 2007 (1) (Unaudited) Assets Current assets: Cash and equivalents $6,637 $6,111 Short-term investments (including securities pledged as collateral of $2,696 and $2,356) 14,937 17,300 Total cash and short-term investments 21,574 23,411 Accounts receivable, net of allowance for doubtful accounts of $133 and $117 8,982 11,338 Inventories, net 1,178 1,127 Deferred income taxes 1,571 1,899 Other current assets 2,548 2,393 Total current assets 35,853 40,168 Property and equipment, net 4,615 4,350 Equity and other investments 9,707 10,117 Goodwill 10,151 4,760 Intangible assets, net 1,718 878 Deferred income taxes 1,587 1,389 Other long-term assets 2,014 1,509 Total assets $65,645 $63,171 Liabilities and stockholders’ equity Current liabilities: Accounts payable $3,206 $3,247 Accrued compensation 1,796 2,325 Income taxes 1,410 1,040 Short-term unearned revenue 9,787 10,779 Securities lending payable 2,936 2,741 Other current liabilities 3,609 3,622 Total current liabilities 22,744 23,754 Long-term unearned revenue 1,785 1,867 Other long-term liabilities 8,981 6,453 Commitments and contingencies Stockholders’ equity: Common stock and paid-in capital – shares authorized 24,000; outstanding 9,355 and 9,380 60,699 60,557 Retained deficit, including accumulated other comprehensive income of $1,530 and $1,654 (28,564) (29,460) Total stockholders’ equity 32,135 31,097 Total liabilities and stockholders’ equity $65,645 $63,171 (1) Derived from audited financial statements Microsoft Corporation Cash Flows Statements (In millions) (Unaudited) Three Months Ended September 30, 2007 2006 Operations Net income $4,289 $3,478 Depreciation, amortization, and other noncash items 435 249 Stock-based compensation 333 456 Net recognized gains on investments (187) (206) Excess tax benefits from stock-based payment arrangements (69) (40) Deferred income taxes 357 166 Unearned revenue 3,821 3,217 Recognition of unearned revenue (4,965) (4,050) Accounts receivable 2,806 2,501 Other current assets (235) (1,080) Other long-term assets (11) (135) Other current liabilities (1,189) (842) Other long-term liabilities 493 347 Net cash from operations 5,878 4,061 Financing Common stock issued 646 385 Common stock repurchased (2,930) (7,683) Common stock cash dividends (938) (897) Excess tax benefits from stock-based payment arrangements 69 40 Other – (20) Net cash used for financing (3,153) (8,175) Investing Additions to property and equipment (510) (411) Acquisition of companies, net of cash acquired (5,396) (336) Purchases of investments (5,997) (12,855) Maturities of investments 330 834 Sales of investments 9,120 18,701 Securities lending payable 196 528 Net cash from (used in) investing (2,257) 6,461 Net change in cash and equivalents 468 2,347 Effect of exchange rates on cash and equivalents 58 15 Cash and equivalents, beginning of period 6,111 6,714 Cash and equivalents, end of period $6,637 $9,076 Microsoft Corp. Segment Revenue and Operating Income / (Loss) (In millions) (Unaudited) Three Months Ended September 30, (in millions) 2007 2006 Revenue Client $4,138 $3,316 Server and Tools 2,900 2,496 Online Services Business 671 536 Microsoft Business Division 4,111 3,419 Entertainment and Devices Division 1,929 1,011 Unallocated and Other 13 33 Total revenue $13,762 $10,811 Operating Income / (Loss) Client $3,367 $2,660 Server and Tools 962 771 Online Services Business (264) (102) Microsoft Business Division 2,694 2,227 Entertainment and Devices Division 165 (142) Corporate-Level Activity (1,006) (940) Total operating income $5,918 $4,474
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Microsoft Corporation
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