What was the primary driver for the significant decrease in net income?

The primary driver for the substantial decrease in net income was a significant negative swing in investment income/(loss). In the three months ended September 30, 2000, Microsoft reported investment income of $1.127 billion, while in the same period of 2001, it reported an investment loss of $980 million.

How did the adoption of new accounting standards affect the financial statements?

Effective July 1, 2001, Microsoft adopted SFAS 141 and SFAS 142. SFAS 142 requires goodwill to be tested for impairment rather than amortized. While there was no impairment charge upon adoption, this change eliminates future goodwill amortization expenses, which would positively impact reported net income. The adoption of SFAS 133 in the prior year had a negative impact on net income at that time.

What is the trend in Microsoft's unearned revenue, and what does it indicate?

Unearned revenue increased to $5.85 billion as of September 30, 2001, up from $4.77 billion in the prior year. This growth in unearned revenue generally indicates a strong sales pipeline and suggests that future revenue recognition will be robust, as these amounts represent payments received for products or services not yet delivered or rendered.

What are the major legal and regulatory issues Microsoft is facing, and what is their potential impact?

Microsoft is involved in significant antitrust litigation with the U.S. Department of Justice and state Attorneys General, as well as investigations by the European Commission and various class-action lawsuits. While the company states it believes resolving these matters will not have a material adverse impact on its financial position or results of operations, these ongoing legal battles present a considerable risk and could lead to substantial fines, mandated business practice changes, or structural remedies in the future.

MSFT 10-Q Quarterly Report Q1 FY2002 — Revenue, Net Income, EPS

Summary

Microsoft Corporation's quarterly report for the period ending September 30, 2001, shows a notable decrease in net income compared to the same period in the prior year, dropping from $2.206 billion to $1.283 billion. This decline is primarily attributed to a significant negative swing in investment income/(loss), which went from a gain of $1.127 billion in 2000 to a loss of $980 million in 2001. Despite this, the company demonstrated revenue growth, with total revenue increasing to $6.126 billion from $5.766 billion year-over-year, indicating resilience in its core business operations. Operating income saw a modest increase, reflecting effective cost management across operating expenses, which grew at a slower pace than revenue. The company also adopted new accounting standards (SFAS 141 and SFAS 142) effective July 1, 2001, which changed how business combinations and goodwill are treated, eliminating goodwill amortization. Investors should note the substantial investment portfolio volatility and the ongoing legal and regulatory challenges as key factors impacting future financial performance.

Key Highlights

1Revenue increased by 6.2% to $6.126 billion for the three months ended September 30, 2001, compared to $5.766 billion in the prior year period.
2Net income decreased significantly by 41.8% to $1.283 billion ($0.23 per diluted share) from $2.206 billion ($0.40 per diluted share) in the prior year, largely due to a substantial loss on investments.
3Operating income rose slightly by 4.3% to $2.897 billion, indicating improved operational efficiency as revenue outpaced operating expense growth.
4The company adopted SFAS 141 and SFAS 142, ceasing the amortization of goodwill, which would have a positive impact on reported net income in future periods.
5Total cash and short-term investments remained strong, increasing to $36.163 billion as of September 30, 2001, from $31.600 billion as of June 30, 2001.
6Unearned revenue grew to $5.85 billion from $4.77 billion in the prior year, suggesting a healthy pipeline of future recognized revenue.
7Significant legal and regulatory matters, including antitrust litigation and investigations, continue to be a prominent factor for the company, with potential future impacts.

MICROSOFT CORP Quarterly Report (Amendment) for Q1 Ended Sep 30, 2001

Summary

Key Highlights

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