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Microsoft Earnings Released, Company Posts $16.01 Billion In Revenue

Microsoft managed to release its FY13 Q1 earnings report today without all the craziness that accompanied Google’s. Revenue was $16.01 billion for the quarter. Operating income, net income, and ...
Microsoft Earnings Released, Company Posts $16.01 Billion In Revenue
Written by Chris Crum
  • Microsoft managed to release its FY13 Q1 earnings report today without all the craziness that accompanied Google’s.

    Revenue was $16.01 billion for the quarter. Operating income, net income, and diluted earnings per share for the quarter were $5.31 billion, $4.47 billion, and $0.53 per share.

    CEO Steve Ballmer said, “The launch of Windows 8 is the beginning of a new era at Microsoft. Investments we’ve made over a number of years are now coming together to create a future of exceptional devices and services, with tremendous opportunity for our customers, developers, and partners.”

    CFO Peter Klein added, “While enterprise revenue continued to grow and we managed our expenses, the slowdown in PC demand ahead of the Windows 8 launch resulted in a decline in operating income. Multi-year licensing revenue grew double-digits across Windows, Server & Tools, and Microsoft Business Division products as businesses commit to our technology roadmap.”

    Microsoft shares are down 2.35% in after hours trading.

    Here’s the release in its entirety:

    Microsoft Reports First-Quarter Results

    Upcoming launches of key products and services position Microsoft for long-term profit growth.

     

    REDMOND, Wash. — Oct. 18, 2012 — Microsoft Corp. today announced quarterly revenue of $16.01 billion for the quarter ended Sept. 30, 2012. Operating income, net income, and diluted earnings per share for the quarter were $5.31 billion, $4.47 billion, and $0.53 per share.

    These financial results reflect the deferral of $1.36 billion of revenue and $0.13 of diluted earnings per share, due to the Windows Upgrade Offer, pre-sales of Windows 8 to OEMs prior to general availability, and the Office Offer.

     

     

    Three Months Ended September 30,

    Percentage Change

    (In millions, except per share amounts and percentages)

    Revenue

    Operating income

    Diluted EPS

    Revenue

    Operating income

    Diluted EPS

    2011 As Reported (GAAP)

    $17,372

    $7,203

    $0.68

     

     

     

    2012 As Reported (GAAP)

    $16,008

    $5,308

    $0.53

    (8)%

    (26)%

    (22)%

    Revenue deferred for Windows Upgrade Offer, Windows 8 Pre-sales, and Office Offer

    $1,356

    $1,356

    $0.13

          

     

     

    2012 As Adjusted (Non-GAAP)

    $17,364

    $6,664

    $0.65

    0%

    (7)%

    (4)%

     

    Totals may not foot due to rounding

     

    “The launch of Windows 8 is the beginning of a new era at Microsoft,” said Steve Ballmer, chief executive officer at Microsoft. “Investments we’ve made over a number of years are now coming together to create a future of exceptional devices and services, with tremendous opportunity for our customers, developers, and partners.”

    The Server & Tools business reported $4.55 billion in first-quarter revenue, an 8% increase from the prior year period, driven by double-digit revenue growth in SQL Server and more than 20% growth in System Center revenue. In September, Microsoft continued to enrich its server offerings with the launch of Windows Server 2012.

    The Microsoft Business Division posted $5.50 billion in first-quarter revenue, a 2% decrease from the prior year period. Adjusting for the impact of the Office Offer, Microsoft Business Division non-GAAP revenue increased 1% for the first quarter. Microsoft’s productivity server offerings – including Lync, SharePoint, and Exchange – continued double-digit revenue growth.

    “While enterprise revenue continued to grow and we managed our expenses, the slowdown in PC demand ahead of the Windows 8 launch resulted in a decline in operating income,” said Peter Klein, chief financial officer at Microsoft. “Multi-year licensing revenue grew double-digits across Windows, Server & Tools, and Microsoft Business Division products as businesses commit to our technology roadmap.”

    The Windows & Windows Live Division posted revenue of $3.24 billion, a 33% decrease from the prior year period. Adjusting for the impact of the Windows Upgrade Offer and pre-sales of Windows 8 to OEMs prior to general availability, Windows division non-GAAP revenue declined 9% for the first quarter. Windows 8 will become generally available October 26, 2012.

    “We’re incredibly excited to be approaching general availability of Windows 8 and Windows RT,” said Kevin Turner, Microsoft chief operating officer.  “We’ve already certified more than 1,000 systems for Windows 8 from our hardware partners, ranging from the smallest tablets and convertibles to touch-enabled ultrabooks and all-in-ones to the most powerful desktop computers.”

    The Online Services Division reported revenue of $697 million, a 9% increase from the prior year period. Online advertising revenue grew 15% driven primarily by an increase in revenue per search.

    The Entertainment and Devices Division posted revenue of $1.95 billion, a decrease of 1% from the prior year period. Xbox continues to be the top-selling console in the U.S., where it now has 49% market share. Windows Phone 8 will launch this fall with an expanded array of products, prices, carriers, and markets. Skype continued its rapid growth and now has over 280 million users.

    Business Outlook

    Microsoft reaffirms fiscal year 2013 operating expense guidance of $30.3 billion to $30.9 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 Oct. 18, 2013.

    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 first quarter fiscal year 2013 revenue, operating income, and earnings per share growth, we included the impact of revenue deferred during the first quarter of fiscal year 2013 relating to the Windows Upgrade Offer, pre-sales of Windows 8 to OEMs prior to general availability, and the Office Offer. Presenting these measures without the impact of these items 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 should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

    Non-GAAP Reconciliations

     

     

    (In millions, except percentages)

    Three Months Ended

    September 30,

    Percentage Change

    2011 As Reported WWLD revenue (GAAP)

    $4,874

     

    2012 As Reported WWLD revenue (GAAP)

    $3,244

    (33)%

    Revenue deferred for Windows Upgrade Offer and Windows 8 Pre sales

    $1,167

     

    2012 As Adjusted WWLD revenue (Non-GAAP)

    $4,411

    (9)%

     

     

    (In millions, except percentages)

    Three Months Ended

    September 30,

    Percentage Change

    2011 As Reported MBD revenue (GAAP)

    $5,635

     

    2012 As Reported MBD revenue (GAAP)

    $5,502

    (2)%

    Revenue deferred for Office Offer

    $189

     

    2012 As Adjusted MBD revenue (Non-GAAP)

    $5,691

    1%

    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:

    • intense competition in all of Microsoft’s markets;
    • execution and competitive risks in transitioning to cloud-based computing;
    • significant business investments that may not gain customer acceptance and produce offsetting increases in revenue;
    • 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;
    • cyber-attacks and 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;
    • 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, cyber-attack 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 Oct. 18, 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,[email protected]

     

    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. 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 September 30,

     

    2012

     

    2011

    Revenue

     $         16,008

     $    17,372

    Cost of revenue

    4,168

    3,777

      Gross profit

    11,840

    13,595

    Operating expenses:
      Research and development

    2,460

    2,329

      Sales and marketing

    2,945

    2,900

      General and administrative

    1,127

    1,163

        Total operating expenses

    6,532

    6,392

    Operating income

    5,308

    7,203

    Other income

    226

    103

    Income before income taxes

    5,534

    7,306

    Provision for income taxes

    1,068

    1,568

    Net income

     $           4,466

     $      5,738

    Earnings per share:
      Basic

     $            0.53

     $       0.68

      Diluted

     $            0.53

     $       0.68

    Weighted average shares outstanding:
      Basic

    8,396

    8,392

      Diluted

    8,494

    8,490

    Cash dividends declared per common
    share

     $            0.23

     

     $       0.20

     

     

    MICROSOFT CORPORATION

    COMPREHENSIVE INCOME STATEMENTS

    (In millions) (Unaudited)

    Three Months Ended September 30,

     

    2012

     

    2011

    Net income

     $           4,466

     $      5,738

    Other comprehensive income (loss):
      Net unrealized gains (losses) on derivatives (net of
    tax effects of $(24), and $86)

    (45)

    160

      Net unrealized gains (losses) on investments (net of
    tax effects of $148, and $(619))

    274

    (1,149)

      Translation adjustments and other (net of tax effects
    of $91, and $(66))

    169

    (123)

          Other comprehensive income (loss)

    398

    (1,112)

    Comprehensive income

     $           4,864

     $      4,626

     

     

    MICROSOFT CORPORATION

    BALANCE SHEETS

    (In millions)(Unaudited)

     

    September 30,
    2012

     

    June 30, 2012

    Assets
    Current assets:
      Cash and cash equivalents

     $            5,036

     $      6,938

      Short-term investments (including securities
    loaned of $400 and $785)

    61,608

    56,102

        Total cash, cash equivalents, and short-term
    investments

    66,644

    63,040

      Accounts receivable, net of allowance for doubtful
    accounts of $265 and $389

    9,871

    15,780

      Inventories

    1,624

    1,137

      Deferred income taxes

    2,052

    2,035

      Other

    3,860

    3,092

        Total current assets

    84,051

    85,084

    Property and equipment, net of accumulated
    depreciation of $11,401 and $10,962

    8,329

    8,269

    Equity and other investments

    10,038

    9,776

    Goodwill

    14,466

    13,452

    Intangible assets, net

    3,423

    3,170

    Other long-term assets

    1,569

    1,520

            Total assets

     $         121,876

     $  121,271

    Liabilities and stockholders’ equity
    Current liabilities:
      Accounts payable

     $            3,631

     $      4,175

      Current portion of long-term debt

    2,236

    1,231

      Accrued compensation

    2,666

    3,875

      Income taxes

    847

    789

      Short-term unearned revenue

    18,295

    18,653

      Securities lending payable

    415

    814

      Other

    3,312

    3,151

        Total current liabilities

    31,402

    32,688

    Long-term debt

    9,714

    10,713

    Long-term unearned revenue

    1,292

    1,406

    Deferred income taxes

    2,209

    1,893

    Other long-term liabilities

    8,423

    8,208

        Total liabilities

    53,040

    54,908

    Commitments and contingencies
    Stockholders’ equity:
      Common stock and paid-in capital – shares
    authorized 24,000; outstanding 8,422 and 8,381

    66,084

    65,797

      Retained earnings (deficit)

    932

    (856)

      Accumulated other comprehensive income

    1,820

    1,422

        Total stockholders’ equity

    68,836

    66,363

            Total liabilities and stockholders’ equity

     $         121,876

     $  121,271

     

    MICROSOFT CORPORATION

    CASH FLOW STATEMENTS

    (In millions) (Unaudited)

    Three Months Ended September 30,

     

    2012

     

    2011

    Operations
    Net income

     $           4,466

     $      5,738

    Adjustments to reconcile net income
    to net cash from operations:
      Depreciation, amortization, and
    other

    710

    726

      Stock-based compensation
    expense

    603

    558

      Net recognized losses (gains) on
    investments and derivatives

    11

    (30)

      Excess tax benefits from
    stock-based compensation

    (177)

    (70)

      Deferred income taxes

    38

    402

      Deferral of unearned revenue

    8,209

    6,139

      Recognition of unearned revenue

    (8,770)

    (7,653)

      Changes in operating assets and
    liabilities:
        Accounts receivable

    6,156

    4,733

        Inventories

    (473)

    (920)

        Other current assets

    (385)

    260

        Other long-term assets

    (233)

    (75)

        Accounts payable

    (567)

    (442)

        Other current liabilities

    (1,287)

    (993)

        Other long-term liabilities

    183

    120

            Net cash from operations

    8,484

    8,493

    Financing
    Common stock issued

    417

    336

    Common stock repurchased

    (1,632)

    (1,934)

    Common stock cash dividends paid

    (1,676)

    (1,341)

    Excess tax benefits from
    stock-based compensation

    177

    70

            Net cash used in financing

    (2,714)

    (2,869)

    Investing
    Additions to property and equipment

    (603)

    (436)

    Acquisition of companies, net of
    cash acquired, and purchases of
    intangible and other assets

    (1,145)

    (875)

    Purchases of investments

    (20,138)

    (11,299)

    Maturities of investments

    1,259

    2,825

    Sales of investments

    13,307

    7,536

    Securities lending payable

    (399)

    (66)

            Net cash used in investing

    (7,719)

    (2,315)

    Effect of exchange rates on cash
    and cash equivalents

    47

    (38)

    Net change in cash and cash
    equivalents

    (1,902)

    3,271

    Cash and cash equivalents,
    beginning of period

    6,938

    9,610

    Cash and cash equivalents, end of
    period

     $           5,036

     $    12,881

     

     

    MICROSOFT CORPORATION

     

     

     

    SEGMENT REVENUE AND OPERATING INCOME (LOSS)

    (In millions) (Unaudited)

     

     

     

     

     

    Three Months Ended September 30,

     
     

    2012

     

    2011

    Revenue

     

     

    Windows & Windows Live Division

     $           3,244

     

     $      4,874

    Server and Tools

    4,552

     

    4,216

    Online Services Division

    697

     

    641

    Microsoft Business Division

    5,502

     

    5,635

    Entertainment and Devices Division

    1,946

     

    1,961

    Unallocated and other

    67

     

    45

      Consolidated

     $         16,008

     

     $    17,372

     

     

     

    Operating income (loss)

     

     

    Windows & Windows Live Division

     $           1,646

     

     $      3,270

    Server and Tools

    1,748

     

    1,565

    Online Services Division

    (364)

     

    (514)

    Microsoft Business Division

    3,646

     

    3,717

    Entertainment and Devices Division

    19

     

    340

    Corporate-level activity

    (1,387)

     

    (1,175)

      Consolidated

     $           5,308

     

     $      7,203

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