10-QPeriod: Q3 FY2012

MICROSOFT CORP Quarterly Report for Q3 Ended Mar 31, 2012

Filed April 19, 2012For Securities:MSFT

Summary

Microsoft Corporation (MSFT) reported its fiscal third-quarter and year-to-date results for the period ending March 31, 2012. The company demonstrated steady revenue growth, with a 6% increase year-over-year for both the quarter and the nine-month period, reaching $17.4 billion and $55.7 billion, respectively. Operating income also saw a positive trend, increasing by 12% for the quarter to $6.4 billion, though it grew at a more modest 3% for the nine months to $21.6 billion. Despite an overall positive financial performance, diluted earnings per share (EPS) experienced a slight decline of 2% for the quarter to $0.60, impacted by a prior year's favorable one-time tax settlement. For the nine-month period, diluted EPS grew by 2% to $2.05. The company's balance sheet remains robust, with total assets growing to $118 billion, bolstered by significant investments in short-term investments and a substantial increase in goodwill, primarily due to the acquisition of Skype. Cash flow from operations was strong, indicating healthy underlying business performance.

Financial Highlights

52 data points
Beta

Revenue

$17.41B

77.3% Gross Margin

Net Income

$5.11B

29.3% Net Margin

EPS (Diluted)

$0.60

Total Assets

$118.01B

Cash & Equivalents

$6.39B

Free Cash Flow

$8.85B

Financial Statements
Beta
Revenue$17.41B
Cost of Revenue$3.95B
Gross Profit$13.46B
R&D Expenses$2.52B
Operating Expenses$7.08B
Operating Income$6.37B
Interest Expense$95.00M
Net Income$5.11B
EPS (Basic)$0.61
EPS (Diluted)$0.60
Shares Outstanding (Basic)8.40B
Shares Outstanding (Diluted)8.50B

Key Highlights

  • 1Revenue increased by 6% year-over-year to $17.4 billion for the third quarter and by 6% to $55.7 billion for the nine months ended March 31, 2012.
  • 2Operating income grew by 12% to $6.4 billion in the third quarter, but showed a more modest 3% increase to $21.6 billion for the nine-month period.
  • 3Diluted EPS decreased slightly by 2% to $0.60 for the third quarter, impacted by a strong prior-year comparable period that included a significant tax settlement. Nine-month diluted EPS increased by 2% to $2.05.
  • 4The acquisition of Skype on October 13, 2011, contributed to an increase in goodwill to $19.7 billion from $12.6 billion in the prior year.
  • 5Total cash, cash equivalents, and short-term investments increased to $59.5 billion, providing significant liquidity.
  • 6The company repurchased approximately $1.0 billion of its common stock during the quarter, as part of an ongoing share repurchase program.
  • 7The Server and Tools segment showed strong performance with a 14% revenue increase for the quarter, driven by SQL Server, Windows Server, and System Center growth.

Frequently Asked Questions

The acquisition of Skype, completed on October 13, 2011, contributed to an increase in goodwill by $7.1 billion, bringing the total goodwill to $19.7 billion as of March 31, 2012. Skype's revenue was also incorporated into the Entertainment and Devices Division results from the acquisition date onwards, influencing that segment's performance.

The Windows Division revenue for the quarter increased 4%, largely correlated with the PC market. The company estimated PC sales to businesses grew approximately 8% and consumer sales were flat, with an overall estimated PC market increase of 2% to 4%. The nine-month period showed flat revenue for the division, reflecting a more subdued PC market with estimated growth of 0% to 2%.

For the third quarter, 'Other Income (Expense)' shifted to a net expense of $11 million from a net income of $316 million in the prior year. This was primarily due to lower net gains on investments (specifically, lower gains on equity securities and higher other-than-temporary impairments), and increased net losses on derivatives. The nine-month period also saw a decrease, with net income of $337 million compared to $762 million in the prior year, driven by similar factors including higher other-than-temporary impairments on investments.

Microsoft maintains a substantial cash, cash equivalents, and short-term investments balance, totaling $59.5 billion. These are primarily invested in highly liquid, investment-grade fixed-income securities. A significant portion ($50 billion) is held by foreign subsidiaries and is subject to repatriation tax effects. The company also engages in securities lending to enhance investment returns.