10-QPeriod: Q1 FY2013

MICROSOFT CORP Quarterly Report for Q1 Ended Sep 30, 2012

Filed October 18, 2012For Securities:MSFT

Summary

Microsoft Corporation (MSFT) reported its results for the quarter ended September 30, 2012. The company experienced an 8% year-over-year decrease in revenue, primarily impacted by the deferral of revenue related to Windows 8 pre-sales and the Windows 7 to Windows 8 upgrade offer, as well as lower Xbox 360 platform revenue. This revenue decline, coupled with increased costs in cost of revenue and R&D, led to a significant 26% decrease in operating income and a 22% drop in diluted earnings per share to $0.53. Despite the revenue challenges, the Server and Tools segment showed strong growth with an 8% increase in revenue. The company also reported a robust cash flow from operations of $8.5 billion. Microsoft continued its capital return program, repurchasing shares worth $1 billion during the quarter and paying out dividends. The company is actively investing in new products and services, with Windows 8 and Surface devices set to launch, signaling a strategic shift towards devices and services. Management highlighted ongoing R&D investments and a focus on cloud-based solutions for both consumers and enterprises. Significant cash reserves, with over $66 billion in cash, cash equivalents, and short-term investments, provide financial flexibility.

Financial Highlights

54 data points
Beta

Revenue

$16.01B

74.0% Gross Margin

Net Income

$4.47B

27.9% Net Margin

EPS (Diluted)

$0.53

Total Assets

$121.88B

Cash & Equivalents

$5.04B

Free Cash Flow

$7.88B

Financial Statements
Beta
Revenue$16.01B
Cost of Revenue$4.17B
Gross Profit$11.84B
R&D Expenses$2.46B
Operating Expenses$6.53B
Operating Income$5.31B
Interest Expense$95.00M
Net Income$4.47B
EPS (Basic)$0.53
EPS (Diluted)$0.53
Shares Outstanding (Basic)8.40B
Shares Outstanding (Diluted)8.49B

Key Highlights

  • 1Revenue decreased by 8% to $16.01 billion compared to $17.37 billion in the prior year quarter.
  • 2Operating income decreased by 26% to $5.31 billion from $7.20 billion.
  • 3Diluted earnings per share (EPS) declined by 22% to $0.53 from $0.68.
  • 4The Windows & Windows Live Division saw a significant 33% revenue decrease due to revenue deferrals for Windows 8 and Windows 7 upgrade offers.
  • 5The Server and Tools segment demonstrated growth, with revenue increasing by 8% and operating income by 12%.
  • 6Cash flow from operations remained strong at $8.48 billion.
  • 7Microsoft repurchased $1.0 billion of its common stock and declared a dividend of $0.23 per share.

Frequently Asked Questions

The primary reason for the revenue decline was the deferral of revenue related to the upcoming launch of Windows 8. Specifically, $1.2 billion in revenue from Windows 8 pre-sales and the Windows 7 to Windows 8 upgrade offer, as well as $189 million related to the Office Deferral, were recognized as unearned revenue and will be recognized over time rather than in this quarter. Lower Xbox 360 platform revenue also contributed.

The company is actively investing in new products and services aligned with its strategy for devices and cloud. The upcoming launch of Windows 8 and the new Surface devices are key components of this strategy. Microsoft is emphasizing the integration of consumer cloud services with these new form factors and is also focusing on cloud solutions for the enterprise, including hybrid cloud capabilities.

Microsoft maintains a very strong financial position. As of September 30, 2012, the company had $66.6 billion in cash, cash equivalents, and short-term investments. Total assets were $121.9 billion and total liabilities were $53.0 billion, resulting in a healthy stockholders' equity of $68.8 billion. The company also generated substantial operating cash flow, indicating strong operational financial health.

Microsoft is involved in several ongoing legal matters, including antitrust and patent litigation. A significant ongoing issue is a transfer pricing dispute with the IRS for tax years 2004-2011, which could have a material impact if not resolved favorably. The company is also under investigation by the European Commission for potential non-compliance with a commitment regarding a 'Browser Choice Screen' in Europe. While management believes these matters, in aggregate, will not have a material adverse impact, significant uncertainties remain.