EDMOND, Wash., July 23 /PRNewswire-FirstCall/ --Microsoft Corp. today announced
revenue of $13.10 billion for the fourth quarter ended June 30, 2009, a 17%
decline from the same period of the prior year. Operating income, net income and
diluted earnings per share for the quarter were $3.99 billion, $3.05 billion and
$0.34 per share, which represented declines of 30%, 29% and 26%, respectively,
when compared with the prior year period.
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"Our business continued to be negatively impacted by weakness in the global PC
and server markets," said Chris Liddell, chief financial officer at Microsoft.
"In light of that environment, it was an excellent achievement to deliver over
$750 million of operational savings compared to the prior year quarter."
The financial results for the fourth quarter ended June 30, 2009, included the
deferral of $276 million of revenue related to the Windows 7 Upgrade Option
program that was announced on June 25, 2009. This revenue deferral reduced
earnings per share by $0.02.
The fourth-quarter financial results also included $193 million of legal
charges, $108 million of impairments to investments and $40 million of
additional severance charges related to the previously announced plan. Operating
expenses were reduced by $105 million of capitalized research and development
expenses due to the technical milestones reached for Windows 7. Combined, these
items also reduced earnings per share by $0.02.
Significant product milestones were achieved in the quarter including the
releases of Windows 7 release candidate, Windows Server 2008 R2 release
candidate, as well as Bing, Microsoft's search engine designed to help people
make faster, more informed decisions.
For the fiscal year ended June 30, 2009, Microsoft reported revenue of $58.44
billion, a 3% decline from the prior year. Operating income, net income and
diluted earnings per share for the year were $20.36 billion, $14.57 billion and
$1.62, which represented declines of 9%, 18% and 13% respectively.
"While economic conditions presented challenges this year, we maintained our
focus on delivering customer satisfaction and providing solutions to our
customers to save money," said Kevin Turner, chief operating officer at
Microsoft. "I am very excited by the wave of product and services innovations
being delivered in this next fiscal year."
Business Outlook
Microsoft is providing operating expense guidance of $26.6 billion to $26.9
billion, for the full year ending June 30, 2010.
Management will discuss fourth-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 July 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 July 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.
This document contains statements that are forward-looking. These statements are
based on current expectations and assumptions that are subject to risks and
uncertainties which may cause actual results to differ materially from the
forward-looking statements in this document. We undertake no obligation to
update or revise publicly any forward-looking statements, whether as a result of
new information, future events, or otherwise.
Summary
Three months ended June 30, 2009 compared with three months ended June 30, 2008
Revenue declined across all segments driven primarily by weakness in the global
PC market and the unfavorable economic environment. Primary factors contributing
to the decline include the following:
-- Revenue from Windows operating systems declined reflecting PC market
weakness, especially PCs sold to businesses, and a decline in the OEM
premium mix. Revenue from Windows was also impacted by a $276 million
deferral for the Windows 7 Upgrade Option program. The program, which
started June 26, 2009, allows customers who purchase PCs from
participating computer makers or retailers with certain versions of
Windows Vista to receive an upgrade to the corresponding version of
Windows 7 at minimal or no cost. In addition, purchasers of retail
packaged Windows Vista from participating retailers in participating
markets may qualify for a free or discounted upgrade to the equivalent
Windows 7 product. We expect to launch Windows 7, our most recent
version of the Windows operating system, in the first half of fiscal
year 2010.
-- Revenue from the 2007 Microsoft Office system decreased reflecting PC
market weakness, a shift to lower-priced products, and pricing
promotions.
-- Revenue from our Entertainment and Devices Division decreased across
most lines of business including Xbox 360 platform and PC game revenue
which declined primarily as a result of decreased console sales and
revenue per console due to price reductions during the past 12 months,
partially offset by increased Xbox Live revenue.
-- Foreign currency exchange rates accounted for a $219 million or one
percentage point decrease in revenue.
Operating income declined primarily driven by decreased revenue, partially
offset by decreased operating expenses. The reduction in operating expenses
included cost savings as a result of the resource management program implemented
in January 2009 described below. The following components contributed to the
overall decrease in operating expenses:
-- General and administrative expenses increased $67 million or 7%,
primarily driven by increased costs for legal settlements and legal
contingencies, partially offset by decreased professional consulting
fees as a result of the resource management program. We incurred $193
million of legal charges during the three months ended June 30, 2009.
-- Sales and marketing expenses decreased $691 million or 18%, primarily
driven by the resource management program. As part of that plan, we
reduced marketing and headcount-related expenses.
-- Cost of revenue decreased $280 million or 10%, primarily reflecting
decreased Xbox 360 platform costs and decreased costs associated with
the decline in consulting services provided, partially offset by
increased online traffic acquisition costs.
-- Headcount-related expenses decreased 6%, primarily driven by the
resource management plan.
Diluted earnings per share declined reflecting decreased net income, partially
offset by share repurchases during the fiscal year. While we did not repurchase
any shares during the three months ended June 30, 2009, we repurchased 318
million shares during the first nine months of fiscal year 2009.
Twelve months ended June 30, 2009 compared with twelve months ended June 30,
2008
Revenue declined across most segments primarily driven by weakness in the global
PC market and the unfavorable economic environment. Foreign currency exchange
rates accounted for a $486 million or one percentage point increase in revenue.
Primary factors contributing to the decline include the following:
-- Revenue from Windows operating systems declined reflecting PC market
weakness, especially PCs sold to businesses, and a decline in the OEM
premium mix.
-- Revenue from our Entertainment and Devices Division decreased across
most lines of business including Xbox 360 platform and PC game revenue
which declined primarily as a result of decreased revenue per console
due to price reductions during the past 12 months, partially offset by
increased console sales and Xbox Live revenue. The above declines were
partially offset by increased server and server application revenue,
reflecting recognition of deferred revenue from previously signed
agreements and continued adoption of the Windows Server Platform and
applications through SQL Server, Enterprise CAL Suites, and System
Center products.
Operating income decreased primarily reflecting decreased revenue. Operating
expenses were flat with decreased general and administrative and sales and
marketing expenses offset by increased headcount-related expenses, cost of
revenue, and employee severance charges.
-- General and administrative expenses decreased $1.4 billion or 28%,
primarily due to decreased costs for legal settlements and
contingencies. We incurred $283 million of legal charges during the
twelve months ended June 30, 2009 as compared to $1.8 billion during the
twelve months ended June 30, 2008. The prior year costs were primarily
related to the European Commission fine of $1.4 billion (euro 899
million).
-- Sales and marketing expenses decreased $381 million or 3%, primarily
driven by the resource management program. As part of that plan, we
reduced marketing and advertising expenses.
-- Headcount-related expenses, excluding $330 million of employee severance
charges, increased 7%, driven by a 2% increase in headcount during the
past 12 months and an increase in salaries and benefits for existing
headcount.
-- Cost of revenue increased $557 million or 5%, primarily reflecting
increased online costs, including online traffic acquisition, data
center and equipment, and headcount-related costs, partially offset by
decreased Xbox 360 platform costs.
In January 2009, we announced and implemented a resource management program to
reduce discretionary operating expenses, employee headcount, and capital
expenditures. As part of this program, we are eliminating up to 5,000 positions
in research and development, marketing, sales, finance, legal, human resources,
and information technology by June 30, 2010. During the twelve months ended June
30, 2009, we recorded employee severance charges of $330 million for the
expected reduction in headcount.
Diluted earnings per share declined primarily reflecting decreased net income,
partially offset by share repurchases during the past 12 months. We repurchased
318 million shares during the twelve months ended June 30, 2009.
On July 22, 2009, the Company announced that Windows 7 and Windows Server 2008
R2 were released to manufacturing. General availability for both products is
expected to be October 22, 2009.
SEGMENT PRODUCT REVENUE/OPERATING INCOME (LOSS)
The revenue and operating income (loss) amounts in this section are presented on
a basis consistent with U.S. GAAP and include certain reconciling items
attributable to each of the segments. Certain corporate-level activity has been
excluded from our segment operating results and is presented separately. Prior
period amounts have been recast to conform to the way we internally manage and
monitor performance at the segment level during the current period.
Client
Client offerings consist of premium and standard edition Windows operating
systems. Premium editions are those that include additional functionality and
are sold at a price above our standard editions. Premium editions include
Windows Vista Business, Windows Vista Home Premium, Windows Vista Ultimate,
Windows Vista Enterprise, Windows XP Professional, Windows XP Media Center, and
Windows XP Tablet PC. Standard editions include Windows Vista Home Basic and
Windows XP Home. Client revenue growth is directly impacted by growth of PC
purchases from original equipment manufacturers ("OEMs") that pre-install
versions of Windows operating systems because the OEM channel accounts for over
80% of total Client revenue. The differences between unit growth rates and
revenue growth rates from year to year are affected primarily by changes in the
mix of OEM Windows premium edition operating systems licensed as a percentage of
total OEM Windows operating systems licensed ("OEM premium mix"), changes in
geographic mix, and changes in the channel mix of products sold by large,
multi-national OEMs versus those sold by local and regional system builders.
Three months ended June 30, 2009 compared with three months ended June 30, 2008
Client revenue decreased primarily as a result of PC market weakness, especially
PCs sold to businesses, and a 13 percentage point decline in the OEM premium mix
to 59%. Revenue growth from Windows operating systems was also impacted by a
$276 million deferral for the Windows 7 Upgrade Option program. OEM revenue
decreased $1.1 billion or 31%, while OEM license units decreased 10%. Based on
our estimates, total worldwide PC shipments from all sources declined
approximately 5% to 7%, driven by decreased demand in emerging and developed
markets.
Client operating income decreased primarily reflecting decreased revenue,
partially offset by decreased research and development and other operating
expenses. Research and development expenses decreased $91 million or 31%,
primarily reflecting the capitalization of certain Windows 7 software
development costs.
Twelve months ended June 30, 2009 compared with twelve months ended June 30,
2008
Client revenue decreased primarily as a result of PC market weakness, especially
PCs sold to businesses, and a 10 percentage point decline in the OEM premium mix
to 64%. OEM revenue decreased $2.3 billion or 16% while OEM license units
declined 2%. Based on our estimates, total worldwide PC shipments from all
sources changed approximately (1%) to 2%, driven by changes in demand in
emerging and developed markets.
Client operating income decreased primarily reflecting decreased revenue and
increased sales and marketing expenses. Sales and marketing expenses increased
$122 million or 7%, primarily reflecting increased advertising and marketing.
Server and Tools
Server and Tools licenses products, applications, tools, content, and services
that are designed to make information technology professionals and developers
more productive and efficient. Server and Tools offerings consist of server
software licenses and client access licenses ("CAL") for Windows Server,
Microsoft SQL Server, and other server products. We also offer developer tools,
training, certification, Microsoft Press, Premier product support services, and
Microsoft Consulting Services. Server products can be run on-site, in a
partner-hosted environment, or in a Microsoft-hosted environment. We use
multiple channels for licensing, including pre-installed OEM versions, licenses
through partners, and licenses directly to end customers. We sell licenses both
as one-time licenses and as multi-year volume licenses.
Three months ended June 30, 2009 compared with three months ended June 30, 2008
Server and Tools revenue decreased primarily reflecting a decline in demand for
server hardware as a result of the unfavorable economic environment. Server and
server application revenue (including CAL) and developer tools revenue decreased
$173 million or 6%, primarily due to decreased Windows Server and SQL Server
revenue, partly offset by increased Enterprise CAL Suites and System Center
revenue. Consulting and Premier product support services revenue decreased $38
million or 5%, reflecting a decline in consulting services provided. Foreign
currency exchange rates accounted for an $82 million or two percentage point
decrease in revenue.
Server and Tools operating income decreased primarily due to decreased revenue,
mostly offset by lower cost of revenue and sales and marketing expenses. Cost of
revenue decreased $92 million or 13%, reflecting the decrease in demand for
consulting services. Sales and marketing expenses decreased $77 million or 7%,
primarily driven by a decrease in corporate marketing activities and
headcount-related expenses associated with our corporate sales force.
Twelve months ended June 30, 2009 compared with twelve months ended June 30,
2008
Server and Tools revenue increased reflecting growth in both product and
services revenue. Server and server application revenue (including CAL) and
developer tools revenue increased $809 million or 8%, primarily driven by growth
in SQL Server, Enterprise CAL Suites, and System Center revenue. This growth
reflects recognition of deferred revenue from previously signed agreements and
continued adoption of the Windows Server Platform and applications. Consulting
and Premier product support services revenue increased $215 million or 8%,
primarily due to revenue from annuity support agreements. Foreign currency
exchange rates accounted for a $140 million or one percentage point increase in
revenue.
Server and Tools operating income increased primarily due to growth in product
revenue, partially offset by increased research and development expenses and
cost of revenue. Research and development expenses increased $168 million or 9%,
primarily driven by increased headcount-related expenses. Cost of revenue
increased $84 million or 3%, reflecting the growth in support, online, and
consulting services.
Online Services Business
Online Services Business ("OSB") consists of an online advertising platform with
offerings for both publishers and advertisers, personal communications services
such as email and instant messaging, and online information offerings such as
Bing and the MSN portals and channels around the world. We earn revenue
primarily from online advertising, including search, display, email, messaging
services, and advertiser and publisher tools. Revenue is also generated through
subscriptions and transactions generated from online paid services, digital
marketing and advertising agency services, and from MSN narrowband Internet
access subscribers.
Three months ended June 30, 2009 compared with three months ended June 30, 2008
OSB revenue decreased primarily reflecting decreased online advertising revenue
and included an unfavorable impact from foreign currency exchange rates of $28
million or three percentage points. Online advertising revenue decreased $86
million or 14%, to $529 million, primarily reflecting a decrease in display
advertising.
OSB operating loss increased primarily due to increased cost of revenue and
decreased revenue. Cost of revenue increased $149 million or 26%, primarily
driven by increased online traffic acquisition costs.
Twelve months ended June 30, 2009 compared with twelve months ended June 30,
2008
OSB revenue decreased primarily as a result of decreased online advertising and
access revenue. Online advertising revenue decreased $73 million or 3%, to $2.3
billion, reflecting a decrease in display advertising, partially offset by an
increase in search advertising. Access revenue decreased $72 million or 28%,
reflecting continued migration of subscribers to broadband or other
competitively-priced service providers. Foreign currency exchange rates
accounted for a $28 million or one percentage point decrease in revenue.
OSB operating loss increased due to increased cost of revenue and research and
development expenses, and decreased revenue. Cost of revenue increased $692
million or 36%, primarily driven by increased online traffic acquisition, data
center and equipment, and headcount-related costs. Research and development
expenses increased $149 million or 13%, primarily due to increased
headcount-related expenses.
Microsoft Business Division
Microsoft Business Division ("MBD") offerings consist of the Microsoft Office
system and Microsoft Dynamics business solutions. Microsoft Office system
products are designed to increase personal, team, and organization productivity
through a range of programs, services, and software solutions. Growth of revenue
from the Microsoft Office system offerings, which generate over 90% of MBD
revenue, depends on our ability to add value to the core Office product set and
to continue to expand our product offerings in other information worker areas
such as content management, enterprise search, collaboration, unified
communications, and business intelligence. Microsoft Dynamics products provide
business solutions for financial management, customer relationship management,
supply chain management, and analytics applications for small and mid-size
businesses, large organizations, and divisions of global enterprises. We
evaluate our results based upon the nature of the end user in two primary parts:
business revenue, which includes Microsoft Office system revenue generated
through volume licensing agreements and Microsoft Dynamics revenue; and consumer
revenue, which includes revenue from retail packaged product sales and OEM
revenue.
Three months ended June 30, 2009 compared with three months ended June 30, 2008
MBD revenue decreased reflecting decreased business and consumer revenue and
included an unfavorable impact from foreign currency exchange rates of $75
million or one percentage point. Business revenue decreased $413 million or 10%,
primarily reflecting a decline in volume licensing agreement revenue, and
included a 13% decrease in Microsoft Dynamics customer billings. Consumer
revenue decreased $289 million or 30%, primarily as a result of PC market
weakness, a shift to lower-priced products, and pricing promotions on the 2007
Microsoft Office system.
MBD operating income decreased reflecting decreased revenue, partially offset by
decreased sales and marketing expenses. Sales and marketing expenses decreased
$116 million or 10%, primarily driven by a decrease in corporate marketing
activities and headcount-related costs associated with our corporate sales
force.
Twelve months ended June 30, 2009 compared with twelve months ended June 30,
2008
MBD revenue was flat reflecting decreased consumer revenue offset by increased
business revenue, and included a favorable impact from foreign currency exchange
rates of $378 million or two percentage points. Consumer revenue decreased $525
million or 14%, primarily as a result of PC market weakness, a shift to
lower-priced products, and pricing promotions on the 2007 Microsoft Office
system. Business revenue increased $490 million or 3%, primarily reflecting
growth in volume licensing agreement revenue and included a 7% decrease in
Microsoft Dynamics customer billings. The growth in volume licensing agreement
revenue primarily reflects recognition of deferred revenue from previously
signed agreements.
MBD operating income decreased reflecting increased cost of revenue and research
and development expenses, partially offset by decreased sales and marketing
expenses. Cost of revenue increased $135 million or 14%, primarily driven by
expenses associated with Fast Search & Transfer ASA ("FAST") which we acquired
in April 2008, as well as online services infrastructure costs. Research and
development expenses increased $119 million or 8%, primarily driven by an
increase in headcount-related expenses associated with FAST. Sales and marketing
expenses decreased $90 million or 2%, primarily driven by a decrease in
corporate marketing activities and headcount-related costs associated with our
corporate sales force.
Entertainment and Devices Division
Entertainment and Devices Division ("EDD") offerings include the Xbox 360
platform (which includes the Microsoft Xbox 360 video game console system, Xbox
360 video games, Xbox Live, and Xbox 360 accessories), the Zune digital music
and entertainment platform, PC software games, online games and services,
Mediaroom (our Internet protocol television software), the Surface computing
platform, mobile and embedded device platforms, and other devices. EDD leads the
development efforts for our line of consumer software and hardware products
including application software for Apple's Macintosh computers and Microsoft PC
hardware products, and is responsible for all retail sales and marketing for
Microsoft Office and Windows operating systems.
Three months ended June 30, 2009 compared with three months ended June 30, 2008
EDD revenue decreased across most lines of our business. Revenue from non-gaming
business decreased $291 million or 42%, primarily reflecting decreased Mediaroom
and Zune revenue. Xbox 360 platform and PC game revenue decreased $110 million
or 12%, primarily as a result of decreased Xbox 360 console sales and decreased
revenue per Xbox 360 console due to price reductions during the past 12 months,
partially offset by increased Xbox Live revenue. We shipped 1.2 million Xbox 360
consoles during the fourth quarter of fiscal year 2009, compared with 1.3
million Xbox 360 consoles during the fourth quarter of fiscal year 2008. Foreign
currency exchange rates accounted for a $27 million or two percentage point
decrease in revenue.
EDD operating loss decreased primarily due to decreased costs of revenue and
sales and marketing expenses, mostly offset by decreased revenue. Cost of
revenue decreased $266 million or 31%, primarily driven by decreased Xbox 360
platform costs. Sales and marketing expenses decreased $107 million or 30%,
reflecting decreased advertising and marketing expenses.
Twelve months ended June 30, 2009 compared with twelve months ended June 30,
2008
EDD revenue decreased across most lines of business. Revenue from our non-gaming
business decreased $292 million or 12%, primarily reflecting decreased Zune and
PC hardware product revenue. Xbox 360 platform and PC game revenue decreased
$161 million or 3%, primarily as a result of decreased revenue per Xbox 360
console due to price reductions during the past 12 months, partially offset by
increased Xbox 360 console sales and increased Xbox Live revenue. We shipped
11.2 million Xbox 360 consoles during fiscal year 2009, compared with 8.7
million Xbox 360 consoles during fiscal year 2008. Foreign currency exchange
rates accounted for a $74 million or one percentage point decrease in revenue.
EDD operating income decreased primarily due to decreased revenue and increased
research and development expenses, partially offset by decreased cost of
revenue. Research and development expenses increased $252 million or 16%,
primarily reflecting increased headcount-related expenses associated with the
Windows Mobile device platform, driven by recent acquisitions. Cost of revenue
decreased $326 million or 7%, primarily due to decreased Xbox 360 platform
costs.
Corporate-Level Activity
Certain corporate-level activity is not allocated to our segments. Those results
include expenses such as broad-based sales and marketing, product support
services, human resources, legal, finance, information technology, corporate
development and procurement activities, research and development and other
costs, legal settlements and contingencies, and employee severance.
Three months ended June 30, 2009 compared with three months ended June 30, 2008
Corporate-level expenses decreased during the three months ended June 30, 2009,
primarily due to a decrease in sales and marketing expenses of $391 million or
75%, reflecting the resource management plan implemented in January 2009,
partially offset by increased general and administrative expenses reflecting
increased costs for legal settlements and legal contingences. We incurred $193
million of legal charges during the three months ended June 30, 2009.
Twelve months ended June 30, 2009 compared with twelve months ended June 30,
2008
Corporate-level expenses decreased during the twelve months ended June 30, 2009,
primarily reflecting decreased general and administrative and sales and
marketing expenses, partially offset by employee severance charges of $330
million. General and administrative expenses decreased $1.4 billion or 28%,
primarily due to decreased costs for legal settlements and contingencies. We
incurred $283 million of legal charges during the twelve months ended June 30,
2009 as compared to $1.8 billion during the twelve months ended June 30, 2008.
The prior year costs were primarily related to the European Commission fine of
$1.4 billion (euro 899 million). Sales and marketing expenses decreased $412
million or 30%, reflecting the resource management plan implemented in January
2009.
Operating Expenses
Cost of Revenue
Cost of revenue includes manufacturing and distribution costs for products sold
and programs licensed, operating costs related to product support service
centers and product distribution centers, costs incurred to drive traffic to our
website and/or acquire online advertising space ("traffic acquisition costs"),
costs incurred to support and maintain Internet-based products and services,
warranty costs, inventory valuation adjustments, costs associated with the
delivery of consulting services, and the amortization of capitalized research
and development costs associated with software products that have reached
technological feasibility. Cost of revenue decreased during the three months
ended June 30, 2009, primarily reflecting decreased Xbox 360 platform costs and
decreased costs associated with the decline in consulting services provided,
partially offset by increased online traffic acquisition costs. Cost of revenue
increased during the twelve months ended June 30, 2009, primarily reflecting
increased online costs, including traffic acquisition, data center and
equipment, and headcount costs, partially offset by decreased Xbox 360 platform
costs.
Research and Development
Research and development expenses include payroll, employee benefits,
stock-based compensation expense, and other headcount-related expenses
associated with product development. Research and development expenses also
include third-party development and programming costs, localization costs
incurred to translate software for international markets, the amortization of
purchased software code and services content, and in-process research and
development. Research and development expenses decreased during the three months
ended June 30, 2009, primarily reflecting the capitalization of $105 million of
certain Windows 7 software development costs. Research and development expenses
increased during the twelve months ended June 30, 2009, primarily reflecting a
13% increase in headcount-related costs.
Sales and Marketing
Sales and marketing expenses include payroll, employee benefits, stock-based
compensation expense, and other headcount-related expenses associated with sales
and marketing personnel and advertising, promotions, trade shows, seminars, and
other programs. Sales and marketing expenses decreased during the three and
twelve months ended June 30, 2009, primarily driven by the resource management
program implemented in January 2009. During the three months ended June 30,
2009, we also reduced headcount-related costs by 10%.
Effective July 1, 2008, we began presenting gains and losses resulting from
foreign currency remeasurements as a component of other income (expense). Prior
to July 1, 2008, we included gains and losses resulting from foreign currency
remeasurements as a component of sales and marketing expense. We changed our
presentation because this better reflects how we manage these foreign currency
exposures, as such gains and losses arising from the remeasurement of foreign
currency transactions are incidental to our operations. For the three and twelve
months ended June 30, 2009, $46 million of gains and $509 million of losses,
respectively, were reported as other income (expense). For the three and twelve
months ended June 30, 2008, $5 million and $221 million of gains, respectively,
were previously recorded as a component of sales and marketing expense and have
been recast as other income (expense).
General and Administrative
General and administrative costs include payroll, employee benefits, stock-based
compensation expense and other headcount-related expenses associated with
finance, legal, facilities, certain human resources and other administrative
headcount, and legal and other administrative fees. General and administrative
expenses increased during the three months ended June 30, 2009, primarily
reflecting $193 million of costs for legal settlements and legal contingencies,
partially offset by decreased professional consulting fees. General and
administrative expenses decreased during the twelve months ended June 30, 2009,
primarily reflecting decreased costs for legal settlements and legal
contingencies. We incurred legal charges of $283 million during the twelve
months ended June 30, 2009, as compared with $1.8 billion during the twelve
months ended June 30, 2008. The fiscal year 2008 legal costs were primarily
related to the European Commission fine of $1.4 billion (euro 899 million).
Employee Severance
In January 2009, we announced and implemented a resource management program to
reduce discretionary operating expenses, employee headcount, and capital
expenditures. As part of this program, we are eliminating up to 5,000 positions
in research and development, marketing, sales, finance, legal, human resources,
and information technology by June 30, 2010. During the three and twelve months
ended June 30, 2009, we recorded employee severance charges of $40 million and
$330 million, respectively, for the expected reduction in headcount.
Other Income (Expense)
The components of other income (expense) were as follows:
Effective July 1, 2008, we began presenting gains and losses resulting from
foreign currency remeasurements as a component of other income (expense). Prior
to July 1, 2008, we included gains and losses resulting from foreign currency
remeasurements as a component of sales and marketing expense. We changed our
presentation because this better reflects how we manage these foreign currency
exposures, as such gains and losses arising from the remeasurement of foreign
currency transactions are incidental to our operations. For the three and twelve
months ended June 30, 2009, $46 million of gains and $509 million of losses,
respectively, were reported as other income (expense). For the three and twelve
months ended June 30, 2008, $5 million and $221 million of gains, respectively,
were previously recorded as a component of sales and marketing expense and have
been recast as other income (expense).
Three months ended June 30, 2009 compared with three months ended June 30, 2008
Dividends and interest income decreased primarily reflecting lower interest
rates on our fixed-income investments. Net recognized losses on investments
increased due to lower gains on sales of investments and higher
other-than-temporary impairments. Other-than-temporary impairments were $108
million during the three months ended June 30, 2009, as compared with $64
million during the three months ended June 30, 2008 and increased primarily due
to the declines in equity markets from the prior year. Net gains on derivatives
increased primarily due to lower costs associated with hedging anticipated
foreign currency revenues and gains on interest rate derivatives in the current
period as compared with losses in the prior period.
Twelve months ended June 30, 2009 compared with twelve months ended June 30,
2008
Dividends and interest income decreased primarily reflecting lower interest
rates on our fixed-income investments. Net recognized losses on investments
increased primarily due to higher other-than-temporary impairments that were
partially offset by gains on sales of certain equity investments held in our
strategic investments portfolio. Other-than-temporary impairments were $862
million during the twelve months ended June 30, 2009, as compared with $312
million during the twelve months ended June 30, 2008, and increased primarily
due to declines in equity values as a result of deterioration in equity markets.
Net losses on derivatives increased primarily due to losses on equity,
commodity, and interest rate derivatives in the current period as compared with
gains in the prior period. Net losses on foreign currency remeasurements
increased due to the strengthening of the U.S. dollar, particularly in the first
half of the current fiscal year.
Income Taxes
Our effective tax rate was 27% for the three and twelve months ended June 30,
2009. Our effective tax rate was 28% for the three months and 26% for the twelve
months ended June 30, 2008. The fiscal year 2008 rate was lower primarily due to
the resolution of tax positions relating to our agreement with the Internal
Revenue Service ("IRS") settling the 2000-2003 examination. As a result of this
settlement and the related impact on subsequent years, we paid the IRS
approximately $4.1 billion during fiscal year 2009.
Financial Condition
Cash, cash equivalents, and short-term investments totaled $31.4 billion as of
June 30, 2009, compared with $23.7 billion as of June 30, 2008. Equity and other
investments were $4.9 billion as of June 30, 2009, compared with $6.6 billion as
of June 30, 2008. Our investments consist primarily of fixed-income securities,
diversified among industries and individual issuers. Our investments are
generally liquid and investment grade. The portfolio is invested predominantly
in U.S. dollar-denominated securities, but also includes foreign-denominated
securities in order to diversify risk. We invest primarily in short-term
securities to facilitate liquidity and for capital preservation. As a result of
the special dividend paid in the second quarter of fiscal year 2005 and shares
repurchased, our retained deficit, including accumulated other comprehensive
income, was $22.8 billion at June 30, 2009. Our retained deficit is not expected
to affect our future ability to operate, pay dividends, or repay our debt given
our continuing profitability and strong cash and financial position.
Share Repurchases
We repurchased common stock in fiscal year 2009 using available cash resources
as follows:
While we did not repurchase any shares during the three months ended June 30,
2009, $22 million of shares were withheld to satisfy minimum statutory tax
withholding obligations on employee stock awards that vested during the quarter.
These share withholdings are included with common stock repurchases in the
financial statements.
Debt
Short-term Debt
In September 2008, our Board of Directors authorized debt financings of up to
$6.0 billion. Pursuant to the authorization, we established a commercial paper
program providing for the issuance and sale of up to $2.0 billion in short-term
commercial paper. As of June 30, 2009, $2.0 billion of the commercial paper was
issued and outstanding with a weighted average interest rate, including issuance
costs, of 0.20% and maturities of 22 to 119 days.
In September 2008, we also entered into a $2.0 billion six-month senior
unsecured credit facility, principally to support the commercial paper program.
In November 2008, we replaced the six-month credit facility with a $2.0 billion
364-day credit facility. This credit facility expires on November 6, 2009. In
March 2009, we entered into an additional credit facility. This $1.0 billion
364-day credit facility expires on March 12, 2010. As of June 30, 2009, we were
in compliance with the only financial covenant in both credit agreements, which
requires us to maintain a coverage ratio of at least three times earnings before
interest, taxes, depreciation, and amortization to interest expense. No amounts
were drawn against these credit facilities during the year ended June 30, 2009.
Long-term Debt
In November 2008, we filed a shelf registration statement with the U.S.
Securities and Exchange Commission that allows us to issue debt securities from
time to time pursuant to the September 2008 authorization for debt financings of
up to $6.0 billion. In May 2009, we sold $3.75 billion of debt securities under
that registration statement as follows: $2.0 billion aggregate principal amount
of 2.95% notes due 2014, $1.0 billion aggregate principal amount of 4.20% notes
due 2019, and $750 million aggregate principal amount of 5.20% notes due 2039
(collectively "the Notes"). Interest on the debt securities will be payable
semi-annually on June 1 and December 1 of each year, commencing on December 1,
2009, to holders of record on the preceding May 15 and November 15. The debt
securities are senior unsecured obligations and will rank equally with our other
unsecured and unsubordinated debt outstanding.
Unearned Revenue
Unearned revenue is comprised of the following items:
Volume licensing programs - Represents customer billings for multi-year
licensing arrangements, paid either upfront or annually at the beginning of each
billing coverage period, which are accounted for as subscriptions with revenue
recognized ratably over the billing coverage period.
Undelivered elements - Represents the right to receive unspecified
upgrades/enhancements of Microsoft Internet Explorer on a when-and-if-available
basis and free post-delivery telephone support. This revenue deferral is
applicable for Windows XP and prior versions shipped as retail packaged
products, products licensed to OEMs, and perpetual licenses for current products
under our Open and Select volume licensing programs. The amount recorded as
unearned is based on the sales price of those elements when sold separately and
is recognized ratably on a straight-line basis over the related product's life
cycle. Product life cycles are currently estimated at three and one-half years
for Windows operating systems. Undelivered elements include $276 million of
deferred revenue related to the Windows 7 Upgrade Option program.
Other - Represents payments for post-delivery support and consulting services to
be performed in the future, online advertising for which the advertisement has
yet to be displayed, Microsoft Dynamics business solutions products, Xbox Live
subscriptions, Mediaroom, and other offerings for which we have been paid
upfront and earn the revenue when we provide the service or software, or
otherwise meet the revenue recognition criteria.
The components of unearned revenue were as follows:
Unearned revenue by segment was as follows:
The following table outlines the expected recognition of unearned revenue as of
June 30, 2009:
Cash Flows
Three months ended June 30, 2009 compared with three months ended June 30, 2008
Cash flow from operations decreased $244 million, reflecting the 17% decrease in
revenue and resulting decline in cash from customers. This impact was partially
offset by other changes in working capital along with the $1.7 billion decrease
in cash paid for other current liabilities reflecting the fiscal year 2008
payment of the European Commission fine. Cash from financing was $2.7 billion in
the three months ended June 30, 2009 as compared with cash used of $5.1 billion
in the prior fiscal year. This increase in cash was due to a $4.3 billion
decrease in stock repurchases along with $3.8 billion of net cash proceeds from
issuance of short-term and long-term debt. Cash used for investing increased
$7.4 billion due to a $9.8 billion decrease in cash from combined investment
purchases, sales, and maturities partially offset by a $2.0 billion decrease in
cash paid for acquisition of companies.
Twelve months ended June 30, 2009 compared with twelve months ended June 30,
2008
Cash flow from operations decreased $2.6 billion due to payments of
approximately $4.1 billion to the IRS in connection with our settlement of the
2000-2003 audit examination. This impact was partially offset by the fiscal year
2008 payment of the $1.4 billion (euro 899 million) European Commission fine.
Cash used for financing decreased $5.5 billion, primarily due to $5.7 billion of
net cash proceeds from issuance of short-term and long-term debt in fiscal year
2009. Financing activities also included a $3.2 billion decrease in common stock
repurchased, which was offset by a $2.9 billion decline in common stock issued.
Cash used for investing increased $11.2 billion due to a $15.9 billion rise in
purchases of investments along with a $1.7 billion decrease in cash from
investment sales and maturities. These impacts were partially offset by a $7.2
billion decrease in cash paid for acquisition of companies, reflecting the
purchase of aQuantive in fiscal year 2008.
Das war so göttlich. Wie er dann zurückgerudert ist. "Äh....ähm...ich...äh meinte wer nur einen GameCube hat" 
zu Reins $50k-Projekten - nicht bei den Lizenzkosten).
