EX-99.1 2 dex991.htm PRESS RELEASE Press release

Exhibit 99.1

Microsoft Reports Record Second Quarter Results

Robust holiday sales and enterprise demand drive revenue growth of 30%

REDMOND, Wash. — January 24, 2008 — Microsoft Corp. today announced second quarter records for revenue, operating income and diluted earnings per share of $16.37 billion, $6.48 billion and $0.50, respectively. Compared to the year ago period, these figures represent growth of 30%, 87% and 92% for revenue, operating income and diluted earnings per share, respectively.

Results in the prior year were impacted by the deferral of $1.64 billion of revenue and operating income and $0.11 of diluted earnings per share from the second to the third quarter of fiscal 2007, due primarily to technology guarantee programs. Without these deferrals, second quarter growth rates for revenue, operating income and earnings per share would be 15%, 27% and 32%, respectively.

“Revenue of over $16 billion this quarter exceeds our previous record by $2 billion,” said Chris Liddell, chief financial officer at Microsoft. “We are extremely pleased by the broad based strength of our business performance and field execution. Throughout the first half of our fiscal year, all of our businesses met or beat our expectations.”

Since Windows Vista became generally available one year ago, Microsoft’s Client business has grown over 20% on average and sales of Windows Vista have surpassed 100 million licenses.

“We are pleased with the progress of Windows Vista in the market. We’ve hit our stride with partners and customers and are looking forward to the release of our first service pack later this quarter,” said Kevin Johnson, president of the Platforms and Services Division at Microsoft.

 

LOGO


Sales to business customers remained brisk in the quarter with Microsoft Business Division and the Server and Tools business each experiencing double-digit revenue growth rates over the prior year and together increased revenue over $1 billion versus the comparable quarter last year. Microsoft Business Division generated 23% business revenue growth driven by the versions of Microsoft Office, Microsoft SharePoint and Microsoft Exchange that were launched last November.

“We are in the midst of another strong year with great momentum heading into calendar year 2008,” said Kevin Turner, chief operating officer at Microsoft. “We continue to see healthy demand from both businesses and consumers in the United States and our growth in emerging markets is especially strong. Looking across Brazil, Russia, India and China, our field revenue reached a combined growth rate over 65% this quarter. As we look ahead, our Windows Server 2008 launch, with our virtualization solution, will further our quest to bring exceptional value to our customers.”

Microsoft rolled out new consumer focused offerings during the quarter such as Windows Home Server, new versions of the Zune media player and the next generation of Windows Live Online Services. Exiting the calendar year, the life to date sales of Xbox 360 consoles reached 17.7 million units, representing a 70% increase from the prior year.

Business Outlook

Microsoft management offers the following guidance for the quarter ending March 31, 2008:

 

   

Revenue is expected to be in the range of $14.3 billion to $14.6 billion.

 

   

Operating income is expected to be in the range of $5.6 billion to $5.7 billion.

 

   

Diluted earnings per share are expected to be in the range of $0.43 to $0.45.

 

LOGO


Management offers the following guidance for the full fiscal year ending June 30, 2008:

 

   

Revenue is expected to be in the range of $59.9 billion to $60.5 billion.

 

   

Operating income is expected to be in the range of $24.2 billion to $24.4 billion.

 

   

Diluted earnings per share are expected to be in the range of $1.85 to $1.88.

Webcast Details

Microsoft will hold an audio webcast at 2:30 p.m. PST (5:30 p.m. EST) 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 January 26, 2009.

Microsoft Corporation

Adjusted Financial Results – Non-GAAP Measures Reconciliation

 

     Three Months Ended December 31,
2007
   Three Months Ended December 31,
2006
   Year over Year Growth  

($ in millions, except per

share amounts)

   Revenue    Operating
income
   Diluted
earnings per
share
   Revenue    Operating
income
   Diluted
earnings per
share*
   Revenue     Operating
income
    Diluted
earnings per
share
 

As reported

   $ 16,367    $ 6,481    $ 0.50    $ 12,542    $ 3,472    $ 0.26    30 %   87 %   92 %

Technology Guarantee & pre-shipment deferrals

            $ 1,637    $ 1,637    $ 0.11       

As adjusted

            $ 14,179    $ 5,109    $ 0.38    15 %   27 %   32 %

 

* Items may not add due to rounding

This information has been provided to aid readers of the financial statements in further understanding the company’s financial performance and the impact that certain items and events had on the financial results may not be indicative of trends affecting the company’s business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

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.

#########

 

LOGO


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 events 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

 

   

Microsoft’s ability to implement 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 January 24, 2008. 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, financial analysts and investors only:

Colleen Healy, general manager, Investor Relations, (425) 706-3703

For more information, press only:

Rapid Response Team, Waggener Edstrom Worldwide, (503) 443-7070, rrt@waggeneredstrom.com

Note to editors: If you are interested in viewing additional information on Microsoft, please visit the Microsoft web page at http://www.microsoft.com/presspass on Microsoft’s corporate information pages. 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, are available at http://www.microsoft.com/msft.

 

LOGO


Microsoft Corporation

Income Statements

(In millions, except per share amounts) (Unaudited)

 

     Three Months Ended
December 31,
   Six Months Ended
December 31,
     2007    2006    2007    2006

Revenue

   $ 16,367    $ 12,542    $ 30,129    $ 23,353

Operating expenses:

           

Cost of revenue

     3,543      3,620      6,218      5,316

Research and development

     1,885      1,637      3,722      3,423

Sales and marketing

     3,392      2,999      6,006      5,190

General and administrative

     1,066      814      1,784      1,478
                           

Total operating expenses

     9,886      9,070      17,730      15,407
                           

Operating income

     6,481      3,472      12,399      7,946

Investment income and other

     339      333      637      900
                           

Income before income taxes

     6,820      3,805      13,036      8,846

Provision for income taxes

     2,113      1,179      4,040      2,742
                           

Net income

   $ 4,707    $ 2,626    $ 8,996    $ 6,104
                           

Earnings per share:

           

Basic

   $ 0.50    $ 0.27    $ 0.96    $ 0.62
                           

Diluted

   $ 0.50    $ 0.26    $ 0.95    $ 0.61
                           

Weighted average shares outstanding:

           

Basic

     9,361      9,806      9,370      9,867
                           

Diluted

     9,503      9,942      9,519      9,996
                           

Cash dividends declared per common share

   $ 0.11    $ 0.10    $ 0.22    $ 0.20
                           


Microsoft Corporation

Balance Sheets

(In millions)

 

     December 31,
2007
    June 30,
    2007 (1)
 
     (Unaudited)        

Assets

    

Current assets:

    

Cash and equivalents

   $ 7,460     $ 6,111  

Short-term investments (including securities pledged as collateral of $1,984 and $2,356)

     13,616       17,300  
                

Total cash and short-term investments

     21,076       23,411  

Accounts receivable, net of allowance for doubtful accounts of $149 and $117

     11,621       11,338  

Inventories, net

     755       1,127  

Deferred income taxes

     1,483       1,899  

Other current assets

     2,840       2,393  
                

Total current assets

     37,775       40,168  

Property and equipment, net

     4,965       4,350  

Equity and other investments

     9,413       10,117  

Goodwill

     10,309       4,760  

Intangible assets, net

     1,717       878  

Deferred income taxes

     1,200       1,389  

Other long-term assets

     1,960       1,509  
                

Total assets

   $ 67,339     $ 63,171  
                

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 3,612     $ 3,247  

Accrued compensation

     1,977       2,325  

Income taxes

     863       1,040  

Short-term unearned revenue

     10,221       10,779  

Securities lending payable

     2,166       2,741  

Other current liabilities

     3,219       3,622  
                

Total current liabilities

     22,058       23,754  

Long-term unearned revenue

     1,957       1,867  

Other long-term liabilities

     8,893       6,453  

Commitments and contingencies

    

Stockholders’ equity:

    

Common stock and paid-in capital—shares authorized 24,000; outstanding 9,329 and 9,380

     62,528       60,557  

Retained deficit, including accumulated other comprehensive income of $1,628 and $1,654

     (28,097 )     (29,460 )
                

Total stockholders’ equity

     34,431       31,097  
                

Total liabilities and stockholders’ equity

   $ 67,339     $ 63,171  
                

 

(1)

Derived from audited financial statements


Microsoft Corporation

Cash Flows Statements

(In millions) (Unaudited)

 

     Three Months Ended
December 31,
    Six Months Ended
December 31,
 
     2007     2006     2007     2006  

Operations

        

Net income

   $ 4,707     $ 2,626     $ 8,996     $ 6,104  

Depreciation, amortization, and other noncash items

     481       365       916       614  

Stock-based compensation

     360       437       693       893  

Net recognized gains on investments

     (134 )     (29 )     (321 )     (235 )

Excess tax benefits from stock-based payment arrangements

     (33 )     (8 )     (102 )     (48 )

Deferred income taxes

     323       (517 )     680       (351 )

Unearned revenue

     5,995       6,029       9,816       9,246  

Recognition of unearned revenue

     (5,368 )     (4,265 )     (10,333 )     (8,315 )

Accounts receivable

     (2,586 )     (2,945 )     220       (444 )

Other current assets

     445       723       210       (357 )

Other long-term assets

     (55 )     (264 )     (66 )     (399 )

Other current liabilities

     325       (354 )     (864 )     (1,196 )

Other long-term liabilities

     107       244       600       591  
                                

Net cash from operations

     4,567       2,042       10,445       6,103  

Financing

        

Common stock issued

     2,335       4,449       2,981       4,834  

Common stock repurchased

     (4,057 )     (5,797 )     (6,987 )     (13,480 )

Common stock cash dividends

     (1,034 )     (980 )     (1,972 )     (1,877 )

Excess tax benefits from stock-based payment arrangements

     33       8       102       48  

Other

     —         (3 )     —         (23 )
                                

Net cash used in financing

     (2,723 )     (2,323 )     (5,876 )     (10,498 )

Investing

        

Additions to property and equipment

     (695 )     (572 )     (1,205 )     (983 )

Acquisition of companies, net of cash acquired

     (433 )     (125 )     (5,829 )     (461 )

Purchases of investments

     (6,317 )     (9,102 )     (12,314 )     (21,957 )

Maturities of investments

     470       1,325       800       2,159  

Sales of investments

     6,696       7,448       15,816       26,149  

Securities lending payable

     (770 )     (932 )     (574 )     (404 )
                                

Net cash from (used in) investing

     (1,049 )     (1,958 )     (3,306 )     4,503  

Effect of exchange rates on cash and equivalents

     28       22       86       37  
                                

Net change in cash and equivalents

     823       (2,217 )     1,349       145  

Cash and equivalents, beginning of period

     6,637       9,076       6,111       6,714  
                                

Cash and equivalents, end of period

   $ 7,460     $ 6,859     $ 7,460     $ 6,859  
                                


Microsoft Corp.

Segment Revenue and Operating Income / (Loss)

(In millions) (Unaudited)

 

     Three Months Ended
December 31,
    Six Months Ended
December 31,
 
     2007     2006     2007     2006  

Revenue

        

Client

   $ 4,335     $ 2,586     $ 8,473     $ 5,893  

Server and Tools

     3,278       2,843       6,178       5,339  

Online Services Business

     863       625       1,534       1,161  

Microsoft Business Division

     4,811       3,513       8,922       6,941  

Entertainment and Devices Division

     3,060       2,969       4,989       3,980  

Unallocated and Other

     20       6       33       39  
                                

Total revenue

   $ 16,367     $ 12,542     $ 30,129     $ 23,353  
                                

Operating Income / (Loss)

        

Client

   $ 3,358     $ 1,838     $ 6,727     $ 4,485  

Server and Tools

     1,172       981       2,132       1,751  

Online Services Business

     (245 )     (118 )     (510 )     (236 )

Microsoft Business Division

     3,185       2,152       5,879       4,391  

Entertainment and Devices Division

     357       (302 )     524       (423 )

Corporate-Level Activity

     (1,346 )     (1,079 )     (2,353 )     (2,022 )
                                

Total operating income

   $ 6,481     $ 3,472     $ 12,399     $ 7,946