Lower operating expenses narrow revenue gap in difficult economic environment.
REDMOND, Wash., April 23 /PRNewswire-FirstCall/ -- Microsoft Corp. today announced revenue of $13.65 billion for the third quarter ended March 31, 2009, a 6% decline from the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $4.44 billion, $2.98 billion and $0.33 per share, which represented an increase of 3% and declines of 32% and 30%, respectively, when compared with the prior year period.
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The financial results for the third quarter ended March 31, 2009, included $290 million of severance charges related to the previously announced plan to reduce up to 5,000 positions and $420 million of impairments to investments. Combined, these two charges reduced earnings per share by $0.06.
Revenue in Client, Microsoft Business Division, and Server & Tools was negatively impacted by weakness in the global PC and Server markets. Revenue from enterprise customers remained stable during the quarter.
"With our continued R&D investment and our broad suite of products and services, we remain in a great position to compete and gain share in the marketplace," said Kevin Turner, chief operating officer at Microsoft. During the quarter, Microsoft released the beta version of the Windows 7 operating system, which remains on track for a fiscal year 2010 launch. Development milestones were achieved on other products including Microsoft Office 2010, Windows Server 2008 R2 and Windows Mobile.
"While market conditions remained weak during the quarter, I was pleased with the organization's ability to offset revenue pressures with the swift implementation of cost-savings initiatives," said Chris Liddell, chief financial officer at Microsoft. "We expect the weakness to continue through at least the next quarter."
Business Outlook
Microsoft offers updated operating expense guidance of $26.7 billion to $26.9 billion, including severance charges, for the full year ending June 30, 2009.
Management will discuss third quarter results and the company's business outlook on a conference call and webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today.
Webcast Details
Chris Liddell, senior vice president and chief financial officer, Frank Brod, corporate vice president and 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/msft. The webcast will be available for replay through the close of business on April 23, 2010.
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:
- 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 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 the value of our investment portfolio or demand for Microsoft's products and services;
- 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;
- acquisitions and joint ventures that adversely affect the business;
- improper disclosure of personal data could result in liability and harm to Microsoft's reputation; and
- outages and disruptions of online services if Microsoft fails to maintain an adequate operations infrastructure.
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 Web site at http://www.microsoft.com/msft.
All information in this release is as of April 23, 2009. 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 amounts) (Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------- ----------------
2009 2008 2009 2008
------- ------- ------- -------
Revenue $13,648 $14,454 $45,338 $44,583
Operating expenses:
Cost of revenue 2,814 2,514 9,569 8,732
Research and development 2,212 2,035 6,785 5,757
Sales and marketing 2,981 3,274 9,687 9,377
General and administrative 913 2,341 2,631 4,125
Employee severance 290 - 290 -
------- ------- ------- -------
Total operating expenses 9,210 10,164 28,962 27,991
------- ------- ------- -------
Operating income 4,438 4,290 16,376 16,592
Other income (expense) (388) 520 (697) 1,254
------- ------- ------- -------
Income before income taxes 4,050 4,810 15,679 17,846
Provision for income taxes 1,073 422 4,155 4,462
------- ------- ------- -------
Net income $2,977 $4,388 $11,524 $13,384
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Earnings per share:
Basic $0.33 $0.47 $1.29 $1.43
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Diluted $0.33 $0.47 $1.28 $1.41
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Weighted average shares outstanding:
Basic 8,891 9,307 8,960 9,349
======= ======= ======= =======
Diluted 8,904 9,428 9,008 9,492
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Cash dividends declared per common
share $0.13 $0.11 $0.39 $0.33
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Microsoft Corporation
Balance Sheets
(In millions)
March 31, June 30,
2009 2008 (1)
------- -------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $7,285 $10,339
Short-term investments (including securities
pledged as collateral of $1,445 and $2,491) 18,055 13,323
------- -------
Total cash, cash equivalents, and short-term
investments 25,340 23,662
Accounts receivable, net of allowance for
doubtful accounts of $242 and $153 9,182 13,589
Inventories 657 985
Deferred income taxes 1,926 2,017
Other 3,619 2,989
------- -------
Total current assets 40,724 43,242
Property and equipment, net of accumulated
depreciation of $7,236 and $6,302 7,112 6,242
Equity and other investments 4,112 6,588
Goodwill 12,554 12,108
Intangible assets, net 1,756 1,973
Deferred income taxes 956 949
Other long-term assets 1,639 1,691
------- -------
Total assets $68,853 $72,793
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Liabilities and stockholders' equity
Current liabilities:
Accounts payable $3,017 $4,034
Short-term debt 1,999 -
Accrued compensation 2,644 2,934
Income taxes 773 3,248
Short-term unearned revenue 10,924 13,397
Securities lending payable 1,533 2,614
Other 2,933 3,659
------- -------
Total current liabilities 23,823 29,886
Long-term unearned revenue 1,388 1,900
Other long-term liabilities 6,699 4,721
Commitments and contingencies
Stockholders' equity:
Common stock and paid-in capital - shares
authorized 24,000; outstanding 8,898 and 9,151 61,896 62,849
Retained deficit, including accumulated other
comprehensive income of $726 and $1,140 (24,953) (26,563)
------- -------
Total stockholders' equity 36,943 36,286
------- -------
Total liabilities and stockholders' equity $68,853 $72,793
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(1) Derived from audited financial statements
Microsoft Corporation
Cash Flows Statements
(In millions) (Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------- ----------------
2009 2008 2009 2008
------- ------- ------- -------
Operations
Net income $2,977 $4,388 $11,524 $13,384
Depreciation, amortization,
and other noncash items 664 532 1,881 1,448
Stock-based compensation
expense 432 373 1,292 1,066
Net recognized losses (gains)
on investments and
derivatives 507 (179) 682 (500)
Excess tax benefits from
stock-based payment
arrangements (2) (9) (48) (111)
Deferred income taxes (368) 103 462 783
Unearned revenue 5,899 5,228 16,054 15,044
Recognition of unearned
revenue (6,670) (5,368) (19,078) (15,701)
Accounts receivable 1,697 1,857 4,035 2,077
Other current assets 106 (69) 345 141
Other long-term assets 26 (1) (159) (67)
Other current liabilities 114 1,389 (3,824) 525
Other long-term liabilities 662 (1,162) 2,030 (562)
------- ------- ------- -------
Net cash from operations 6,044 7,082 15,196 17,527
------- ------- ------- -------
Financing
Short-term borrowings
(repayments), maturities of
90 days or less, net (329) - 1,667 -
Proceeds from new debt,
maturities longer than 90
days 328 - 328 -
Common stock issued 112 268 436 3,249
Common stock repurchased (18) (1,240) (9,331) (8,227)
Common stock cash dividends (1,155) (1,023) (3,310) (2,995)
Excess tax benefits from
stock-based payment
arrangements 2 9 48 111
------- ------- ------- -------
Net cash used in financing (1,060) (1,986) (10,162) (7,862)
------- ------- ------- -------
Investing
Additions to property and
equipment (632) (759) (2,252) (1,964)
Acquisition of companies, net
of cash acquired - (138) (827) (5,967)
Purchases of investments (10,683) (3,481) (21,525) (15,795)
Maturities of investments 915 462 1,669 1,262
Sales of investments 3,327 2,829 16,102 18,645
Securities lending payable 1,064 309 (1,080) (265)
------- ------- ------- -------
Net cash used in investing (6,009) (778) (7,913) (4,084)
Effect of exchange rates on
cash and cash equivalents (36) 42 (175) 128
------- ------- ------- -------
Net change in cash and cash
equivalents (1,061) 4,360 (3,054) 5,709
Cash and cash equivalents,
beginning of period 8,346 7,460 10,339 6,111
------- ------- ------- -------
Cash and cash equivalents, end
of period $7,285 $11,820 $7,285 $11,820
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Microsoft Corporation
Segment Revenue and Operating Income (Loss)
(In millions) (Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------- ----------------
2009 2008 2009 2008
------- ------- ------- -------
Revenue
-------------------------------
Client $3,404 $4,033 $11,604 $12,506
Server and Tools 3,467 3,238 10,616 9,381
Online Services Business 721 843 2,357 2,377
Microsoft Business Division 4,505 4,731 14,330 13,663
Entertainment and Devices
Division 1,567 1,592 6,564 6,616
Unallocated and other (16) 17 (133) 40
------- ------- ------- -------
Consolidated $13,648 $14,454 $45,338 $44,583
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Operating Income (Loss)
-------------------------------
Client $2,514 $3,115 $8,689 $9,855
Server and Tools 1,344 1,080 3,978 3,170
Online Services Business (575) (226) (1,521) (737)
Microsoft Business Division 2,877 3,127 9,325 9,010
Entertainment and Devices
Division (31) 106 299 668
Corporate-level activity (1,691) (2,912) (4,394) (5,374)
------- ------- ------- -------
Consolidated $4,438 $4,290 $16,376 $16,592
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