Microsoft's Annual Revenue Surpasses $50 Billion
Thursday July 19, 4:10 pm ET
Double-digit revenue and EPS growth fueled by Windows Vista and the 2007 Microsoft Office system
REDMOND, Wash., July 19 /PRNewswire-FirstCall/ -- Microsoft Corp. (Nasdaq: MSFT - News) today announced revenue of $13.37 billion for the quarter ended June 30, 2007, a 13% increase over the same period of the prior year. Diluted earnings per share for the quarter were $0.31. Excluding $0.08 of previously announced charges primarily related to Xbox 360(TM) warranty policies, earnings per share would have been $0.39, an increase of 26% over the same period of the prior year when also adjusted for certain items.
(Logo:
http://www.newscom.com/cgi-bin/prnh/20000822/MSFTLOGO)
For the fiscal year ended June 30, 2007, Microsoft announced revenue of $51.12 billion, a 15% increase over the prior year. Diluted earnings per share for the year were $1.42. Excluding certain items, earnings per share would have been $1.49, an increase of 17% over the prior year when also adjusted for certain items. $31 billion in cash, or approximately 175% of operating cash flow, was returned to shareholders during the year through share buybacks and dividends.
"Surpassing $50 billion in annual sales is a testament to the innovation and value that our product groups delivered into the marketplace, as well as the outstanding execution by our field sales, marketing teams and partners to bring that value to life with our customers," said Kevin Turner, chief operating officer at Microsoft. "In fiscal year 2008, we will continue to drive growth through new product offerings, such as Windows Server® 2008, Visual Studio® 2008, SQL Server(TM) 2008, Office PerformancePoint(TM) Server 2007, and Microsoft Dynamics(TM) Live CRM."
This fiscal year marked the general availability of Microsoft's flagship products, Windows Vista® and the 2007 Microsoft Office system. Revenue growth was primarily driven by solid customer acceptance of these products, as well as increasing sales of existing products such as SQL Server, Windows Server, Visual Studio, and Xbox 360(TM) consoles.
"Our results this quarter cap off an extremely strong fiscal year for the company," said Chris Liddell, chief financial officer at Microsoft. "We have healthy core businesses and are strategically investing in growth opportunities, which will build on our success and contribute to continued double-digit revenue and earnings growth in fiscal year 2008."
Business Outlook
Microsoft management offers the following guidance for the quarter ending September 30, 2007:
-- Revenue is expected to be in the range of $12.4 billion to $12.6 billion.
-- Operating income is expected to be in the range of $5.0 billion to $5.2 billion.
-- Diluted earnings per share are expected to be in the range of $0.38 to $0.40.
Management offers the following guidance for the full fiscal year ending June 30, 2008:
-- Revenue is expected to be in the range of $56.8 billion to $57.8 billion.
-- Operating income is expected to be in the range of $22.2 billion to $22.7 billion.
-- Diluted earnings per share are expected to be in the range of $1.69 to $1.73.
The foregoing guidance does not include the impact of currently undetermined costs associated with Microsoft's acquisition of aQuantive, Inc., which is expected to close in the quarter ending September 30, 2007.
Webcast Details
Microsoft will hold an audio webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today with Chris Liddell, senior vice president and chief financial officer, Frank Brod, corporate vice president and chief accounting officer, and Colleen Healy, general manager of Investor Relations, to discuss details of the company's performance for the quarter and certain forward-looking information. The session may be accessed at
http://www.microsoft.com/msft. The webcast will be available for replay through the close of business on July 19, 2008.
Microsoft Corporation
Adjusted Financial Results - Non-GAAP Measures Reconciliation
Three Months Ended Three Months Ended Year over
June 30, 2007 June 30, 2006 Year
Growth
Diluted Diluted Diluted
Operating Net earnings Operating Net earnings earnings
income income per share income income per per
share share
($ in millions,
except per
share amounts)
As reported $3,989 $3,035 $0.31 $3,881 $2,828 $0.28 11%
Xbox 360(TM)
related
charges (a) $1,057 $749 $0.08
Legal
charges
(non-tax
deductible) $351 $351 $0.03
As adjusted $5,046 $3,784 $0.39 $4,232 $3,179 $0.31 26%
Twelve Months Ended Twelve Months Ended Year over
June 30, 2007 June 30, 2006 Year
Growth
Diluted Diluted Diluted
Operating Net earnings Operating Net earnings earnings
income income per share income income per per
share share
($ in millions,
except per
share amounts)
As reported $18,524 $14,065 $1.42 $16,472 $12,599 $1.20 18%
Xbox 360(TM)
related
charges (a) $1,057 $749 $0.08
Legal
charges $154 $105 $0.01 $758 $523 $0.05
Legal
charges
(non-tax
deductible) $351 $351 $0.03
Tax benefit ($195) ($0.02) ($108)($0.01)
As adjusted $19,735 $14,724 $1.49 $17,581 $13,365 $1.27 17%
(a) Charges primarily related to previously announced Xbox 360(TM)
warranty policies
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 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;
-- improper disclosure of personal or business-sensitive data could result in liability or harm Microsoft's reputation;
-- 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;
-- changes in accounting that may affect Microsoft's reported earnings and operating income;
-- Microsoft may not meet its or third-party financial forecasts;
-- exposure to increased economic and regulatory uncertainties from operating a global business;
-- geo-political conditions, natural disaster, cyber-attack or other catastrophic event disrupting Microsoft's business;
-- acquisitions and joint ventures that adversely affect the business;
-- limitations on the availability of insurance and resulting uninsured losses;
-- sales channel disruption such as the bankruptcy of a major distributor;
-- implementation of operating cost structures that align with revenue growth; and
-- foreign currency, interest rate, fixed income, equity and commodity price risks.
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 July 19, 2007. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.
Microsoft Corporation
Income Statements
(In millions, except per share amount) (Unaudited)
Three Months Ended Year Ended
June 30, June 30,
2007 2006 2007 2006
Revenue $13,371 $11,804 $51,122 $44,282
Operating expenses:
Cost of revenue 3,237 2,130 10,693 7,650
Research and development 1,948 1,861 7,121 6,584
Sales and marketing 3,329 2,822 11,455 9,818
General and administrative 868 1,110 3,329 3,758
Total operating expenses 9,382 7,923 32,598 27,810
Operating income 3,989 3,881 18,524 16,472
Investment income and other 295 377 1,577 1,790
Income before income taxes 4,284 4,258 20,101 18,262
Provision for income taxes 1,249 1,430 6,036 5,663
Net income $3,035 $2,828 $14,065 $12,599
Earnings per share:
Basic $0.32 $0.28 $1.44 $1.21
Diluted $0.31 $0.28 $1.42 $1.20
Weighted average shares outstanding:
Basic 9,507 10,186 9,742 10,438
Diluted 9,657 10,255 9,886 10,531
Cash dividends declared per common
share $0.10 $0.09 $0.40 $0.35
Microsoft Corporation
Balance Sheets
(In millions)
June 30, June 30,
2007 2006 (1)
(Unaudited)
Assets
Current assets:
Cash and equivalents $6,111 $6,714
Short-term investments (including
securities pledged as
collateral of $2,356 and $3,065) 17,300 27,447
Total cash and short-term investments 23,411 34,161
Accounts receivable, net of allowance for
doubtful accounts of $117 and $142 11,338 9,316
Inventories, net 1,127 1,478
Deferred income taxes 1,899 1,940
Other current assets 2,393 2,115
Total current assets 40,168 49,010
Property and equipment, net 4,350 3,044
Equity and other investments 10,117 9,232
Goodwill 4,760 3,866
Intangible assets, net 878 539
Deferred income taxes 1,389 2,611
Other long-term assets 1,509 1,295
Total assets $63,171 $69,597
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $3,247 $2,909
Accrued compensation 2,325 1,938
Income taxes 1,040 1,557
Short-term unearned revenue 10,779 9,138
Securities lending payable 2,741 3,117
Other current liabilities 3,622 3,783
Total current liabilities 23,754 22,442
Long-term unearned revenue 1,867 1,764
Other long-term liabilities 6,453 5,287
Commitments and contingencies
Stockholders' equity:
Common stock and paid-in capital -
shares authorized 24,000;
outstanding 9,380 and 10,062 60,557 59,005
Retained deficit, including
accumulated other
comprehensive income of $1,654 and
$1,229 (29,460) (18,901)
Total stockholders' equity 31,097 40,104
Total liabilities and
stockholders' equity $63,171 $69,597
(1) Derived from audited financial statements
Microsoft Corporation
Cash Flows Statements
(In millions) (Unaudited)
Three Months Ended Year Ended
June 30, June 30,
2007 2006 2007 2006
Operations
Net income $3,035 $2,828 $14,065 $12,599
Depreciation, amortization, and
other noncash items 381 261 1,440 903
Stock-based compensation expense 336 363 1,550 1,715
Net recognized gains on investments 4 (6) (292) (270)
Excess tax benefits from stock-based
payment arrangements (22) (22) (77) (89)
Deferred income taxes (209) 448 421 219
Unearned revenue 7,235 6,081 21,032 16,453
Recognition of unearned revenue (4,946) (4,073) (19,382) (14,729)
Accounts receivable (2,775) (2,439) (1,764) (2,071)
Other current assets 582 (577) 232 (1,405)
Other long-term assets (4) (37) (435) (49)
Other current liabilities (128) (76) (552) (145)
Other long-term liabilities 913 530 1,558 1,273
Net cash from operations 4,402 3,281 17,796 14,404
Financing
Common stock issued 1,164 192 6,782 2,101
Common stock repurchased (7,217) (3,981) (27,575) (19,207)
Common stock cash dividends (952) (917) (3,805) (3,545)
Excess tax benefits from stock-based
payment arrangements 22 22 77 89
Other - - (23) -
Net cash used for financing (6,983) (4,684) (24,544) (20,562)
Investing
Additions to property and equipment (820) (745) (2,264) (1,578)
Acquisition of companies, net of
cash acquired (648) (316) (1,150) (649)
Purchases of investments (7,094) (5,474) (36,308) (51,117)
Maturities of investments 889 977 4,736 3,877
Sales of investments 9,038 7,517 41,451 54,353
Securities lending payable (290) 1,780 (376) 3,117
Net cash from investing 1,075 3,739 6,089 8,003
Net change in cash and equivalents (1,506) 2,336 (659) 1,845
Effect of exchange rates on cash and
equivalents 6 27 56 18
Cash and equivalents, beginning of
period 7,611 4,351 6,714 4,851
Cash and equivalents, end of period $6,111 $6,714 $6,111 $6,714
Microsoft Corp.
Segment Revenue and Operating Income / (Loss)
(In millions) (Unaudited)
Three Months Ended Year Ended
June 30, June 30,
2007 2006 2007 2006
Revenue
Client $3,808 $3,347 $14,972 $13,089
Server and Tools 3,082 2,691 11,175 9,652
Online Services Business 688 580 2,474 2,299
Microsoft Business Division 4,633 3,905 16,396 14,486
Entertainment and Devices Division 1,159 1,281 6,083 4,756
Unallocated and Other 1 - 22 -
Total revenue $13,371 $11,804 $51,122 $44,282
Operating Income / (Loss)
Client $2,818 $2,546 $11,603 $10,297
Server and Tools 1,054 913 3,900 3,035
Online Services Business (239) (187) (732) (74)
Microsoft Business Division 2,994 2,524 10,838 9,620
Entertainment and Devices Division (1,199) (423) (1,892) (1,284)
Corporate-Level Activity (1,439) (1,492) (5,193) (5,122)
Total operating income $3,989 $3,881 $18,524 $16,472
