Microsoft Reports Record Third-Quarter Revenue

Strong business demand drives double-digit operating income growth.

REDMOND, Wash. — Apr. 19, 2012 — Microsoft Corp. today announced quarterly revenue of $17.41 billion for the quarter ended Mar. 31, 2012, a 6% increase from the prior year period. Operating income was $6.37 billion, up 12% from the prior year period.

Net income and diluted earnings per share for the quarter were $5.11 billion and $0.60 per share, compared with $5.23 billion and $0.61 per share, respectively, in the prior year period. Prior year net income and diluted earnings per share included a $461 million or $0.05 per share tax benefit primarily related to a tax settlement with the U.S. Internal Revenue Service.

“We’re driving toward exciting launches across the entire company, while delivering strong financial results,” said Steve Ballmer, chief executive officer at Microsoft. “With the upcoming release of new Windows 8 PCs and tablets, the next version of Office, and a wide array of products and services for the enterprise and consumers, we will be delivering exceptional value to all our customers in the year ahead.”

The Server & Tools business posted $4.57 billion in third-quarter revenue, a 14% increase from the prior year period, driven by double-digit revenue growth in SQL Server and more than 20% growth in System Center revenue.

The Microsoft Business Division reported $5.81 billion in third-quarter revenue, a 9% increase from the prior year period, reflecting the continued strength of Office 2010 with businesses and consumers. Dynamics posted an 11% revenue increase from the prior year period, with Dynamics CRM revenue growing more than 30%.

The Windows and Windows Live Division posted revenue of $4.62 billion, a 4% increase from the prior year period. Strong Windows 7 adoption continued with enterprise desktops on Windows 7 now up to 40% worldwide.

“We saw strong demand for our business desktop and infrastructure offerings,” said Peter Klein, chief financial officer at Microsoft. “Solid revenue growth and continued cost discipline drove double-digit operating income growth.”

The Online Services Division reported revenue of $707 million, a 6% increase from the prior year period, and operating loss improvement of approximately $300 million.

The Entertainment & Devices Division posted revenue of $1.62 billion, a decrease of 16% from the prior period due to a soft gaming console market. Xbox remained the top-selling console in the U.S. for the 15th consecutive month, and the company announced new television content partners and experiences for its 40 million Xbox LIVE members.

“We continue to execute well across our businesses, and we are seeing robust demand for our enterprise products and services,” said Kevin Turner, chief operating officer at Microsoft. “Our investments and offerings in the database platform and public, private, and hybrid cloud are helping our customers transform their operations to meet today’s evolving business demands.”

Business Outlook

Microsoft is revising operating expense guidance downward and now offers a range of $28.3 billion to $28.7 billion for the full year ending June 30, 2012. Microsoft also offers preliminary fiscal year 2013 operating expense guidance of $30.3 billion to $30.9 billion, representing 6% to 8% growth from the mid-point of fiscal year 2012 guidance.

Webcast Details

Peter Klein, chief financial officer, Frank Brod, 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/investor . The webcast will be available for replay through the close of business on Apr. 19, 2013.

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:

· execution and competitive risks in transitioning to cloud-based computing;

· 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 data that could result in liability and harm to Microsoft’s reputation;

· outages and disruptions of services provided to customers directly or through third parties if Microsoft fails to maintain an adequate operations infrastructure;

· 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 demand for Microsoft’s products and services or the value of our investment portfolio;

· 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; and

· acquisitions, joint ventures and strategic alliances that adversely affect the business.

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/investor.

All information in this release is as of Apr. 19, 2012. 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.

For more information, press only:

Rapid Response Team, Waggener Edstrom Worldwide, (503) 443-7070, rrt@waggeneredstrom.com

For more information, financial analysts and investors only:

Bill Koefoed, general manager, Investor Relations, (425) 706-4400

Note to editors: For more information, news and perspectives from Microsoft, please visit the Microsoft News Center at http://www.microsoft.com/news/ . Web links, telephone numbers and titles were correct at time of publication, but may since have changed. Shareholder and financial information, as well as today’s 2:30 p.m. PST conference call with investors and analysts, is available at http://www.microsoft.com/investor.





MICROSOFT CORPORATION

INCOME STATEMENTS (In millions, except per share amounts) (Unaudited) Three Months Ended March 31, Nine Months Ended March 31, 2012 2011 2012 2011 Revenue $ 17,407 $16,428 $ 55,664 $ 52,576 Operating expenses: Cost of revenue 3,952 3,897 13,367 11,869 Research and development 2,517 2,269 7,217 6,650 Sales and marketing 3,414 3,393 10,076 10,024 General and administrative 1,150 1,160 3,433 3,043 Total operating expenses 11,033 10,719 34,093 31,586 Operating income 6,374 5,709 21,571 20,990 Other income (expense) (11) 316 337 762 Income before income taxes 6,363 6,025 21,908 21,752 Provision for income taxes 1,255 793 4,438 4,476 Net income $ 5,108 $ 5,232 $ 17,470 $ 17,276 Earnings per share: Basic $ 0.61 $ 0.62 $ 2.08 $ 2.03 Diluted $ 0.60 $ 0.61 $ 2.05 $ 2.01 Weighted average shares outstanding: Basic 8,401 8,420 8,398 8,511 Diluted 8,498 8,510 8,502 8,609 Cash dividends declared per common share $ 0.20 $ 0.16 $ 0.60 $ 0.48





MICROSOFT CORPORATION

BALANCE SHEETS (In millions)(Unaudited)

March 31, 2012 June 30, 2011(1) Assets Current assets: Cash and cash equivalents $ 6,388 $ 9,610 Short-term investments (including securities loaned of $1,181 and $1,181) 53,141 43,162 Total cash, cash equivalents, and short-term investments 59,529 52,772 Accounts receivable, net of allowance for doubtful accounts of $322 and $333 10,961 14,987 Inventories 1,412 1,372 Deferred income taxes 2,350 2,467 Other 2,608 3,320 Total current assets 76,860 74,918 Property and equipment, net of accumulated depreciation of $10,952 and $9,829 8,225 8,162 Equity and other investments 9,068 10,865 Goodwill 19,698 12,581 Intangible assets, net 2,756 744 Other long-term assets 1,403 1,434 Total assets $ 118,010 $108,704 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 3,790 $ 4,197 Accrued compensation 3,272 3,575 Income taxes 958 580 Short-term unearned revenue 13,929 15,722 Securities lending payable 1,210 1,208 Other 3,011 3,492 Total current liabilities 26,170 28,774 Long-term debt 11,938 11,921 Long-term unearned revenue 1,262 1,398 Deferred income taxes 1,456 1,456 Other long-term liabilities 8,525 8,072 Total liabilities 49,351 51,621 Commitments and contingencies Stockholders' equity: Common stock and paid-in capital - shares authorized 24,000; outstanding 8,400 and 8,376 65,273 63,415 Retained earnings (deficit), including accumulated other comprehensive income of $1,332 and $1,863 3,386 (6,332) Total stockholders' equity 68,659 57,083 Total liabilities and stockholders' equity $ 118,010 $108,704

(1)Derived from audited financial statements.



MICROSOFT CORPORATION

CASH FLOW STATEMENTS (In millions) (Unaudited)

Three Months Ended March 31, Nine Months Ended March 31, 2012 2011 2012 2011 Operations Net income $ 5,108 $ 5,232 $ 17,470 $ 17,276 Adjustments to reconcile net income to net cash from operations: Depreciation, amortization, and other 766 720 2,170 2,077 Stock-based compensation expense 591 541 1,724 1,622 Net recognized losses (gains) on investments and derivatives 68 (122) (74) (377) Excess tax benefits from stock-based compensation (10) (5) (84) (14) Deferred income taxes (134) (59) 282 (324) Deferral of unearned revenue 8,142 6,616 21,825 19,331 Recognition of unearned revenue (8,283) (7,026) (23,993) (21,189) Changes in operating assets and liabilities: Accounts receivable 2,770 3,031 3,851 3,435 Inventories (50) (170) (79) (258) Other current assets 73 (618) 938 (487) Other long-term assets 9 (8) (36) 172 Accounts payable (114) (51) (380) (235) Other current liabilities 492 237 (107) (1,174) Other long-term liabilities 166 354 442 1,197 Net cash from operations 9,594 8,672 23,949 21,052 Financing Short-term debt repayments, maturities of 90 days or less, net 0 0 0 (186) Proceeds from issuance of debt, maturities longer than 90 days 0 2,239 0 6,960 Repayments of debt, maturities longer than 90 days 0 0 0 (814) Common stock issued 1,091 1,405 1,635 2,242 Common stock repurchased (1,023) (848) (3,999) (10,299) Common stock cash dividends paid (1,683) (1,349) (4,707) (3,830) Excess tax benefits from stock-based compensation 10 5 84 14 Other 0 (15) 0 (40) Net cash from (used in) financing (1,605) 1,437 (6,987) (5,953) Investing Additions to property and equipment (749) (658) (1,683) (1,713) Acquisition of companies, net of cash acquired, and purchases of intangible and other assets (84) 0 (9,586) (69) Purchases of investments (23,951) (14,394) (45,297) (27,707) Maturities of investments 4,236 2,286 13,122 4,992 Sales of investments 7,946 5,738 23,317 9,768 Securities lending payable 361 (111) 3 1,063 Net cash used in investing (12,241) (7,139) (20,124) (13,666) Effect of exchange rates on cash and cash equivalents 30 28 (60) 83 Net change in cash and cash equivalents (4,222) 2,998 (3,222) 1,516 Cash and cash equivalents, beginning of period 10,610 4,023 9,610 5,505 Cash and cash equivalents, end of period $ 6,388 $ 7,021 $ 6,388 $ 7,021



