Osprey Flyer: Microsoft Reports Solid Q2 Financial Performance (Financial Charts) *Revenues, Net Income, EPS Increase* MSFT

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Microsoft reported calendar Q2 2011 financial results on Thursday, July 21, 2011

* Charts and commentary have been updated for Microsoft calendar Q2 June 2011 financial results *

Microsoft Reports Solid Q2 Financial Performance: Revenues, Net Income, EPS Increase

Microsoft Summary Calendar Q2 2011 Microsoft calendar Q2 financial performance was strong and rebounded from the stalled prior calendar Q1 2011 financial results. Total revenues, operating income, net income, earnings per share, gross margin, operating margin, and net margin all increased. Financial position continues strong, very liquid, and total assets are now above $100 billion. Return on assets is an outstanding +24.20%.

Microsoft Income Statement Calendar Q2 2011 Microsoft reported total revenues of $17.37B, net income of $5.87B, and earnings per share of $0.69. From the prior calendar quarter Q1 2011, total revenues were up +5.72%, net income up +12.27%, and earnings per share up +13.11%. Compared to the prior calendar year Q2 2010, these were up +8.28%, +30.10%, and +35.29%, respectively. For calendar Q2 2011, gross margin increased QoQ to 78.65%, but is still below historical 80+% range. Operating margin increased QoQ to 35.53%. Net margin increased QoQ to 33.82%. Cash flow from operations per share dropped $0.70 from the prior Q1 2011 of $1.02. Most of the decrease in cash flow was attributable to an increase in accounts receivable.

Microsoft Balance Sheet Calendar Q2 2011 Total assets increased QoQ +9.00% to a record $108.7 billion from the prior quarter of $99.7 billion. The capital to assets ratio (total stockholders' equity divided by total assets) decreased slightly QoQ to 52.51%. The current ratio (current assets divided by total assets) is a very liquid 68.92%, which is a multi-year high. Microsoft is very liquid with strong capital and has $52.8 billion in cash reserves (cash, cash equivalents, and marketable securities). Add noncurrent investments and the reserves are $63.6 billion.

Microsoft Business Outlook Microsoft reaffirms fiscal 2012 operating expense guidance of 3% to 5% growth from 2011, or $28.0 billion to $28.6 billion.

Microsoft Financial Performance by the Quarters (Charts)

Microsoft Earnings per Share and Cash Flow per Share (Chart) Below is a chart of quarterly earnings per share and cash flow from operations per share. Current Earnings per Share of $0.69 is a +13% QoQ increase from prior calendar Q1 2011 of $0.61. The record high was calendar Q4 2010 of $0.77. Current Cash flow per Share of $0.70 dropped significantly from the prior calendar Q1 2011 of $1.02, which was a multi-year, if not all-time, high. Large changes in accounts receivable have been a major variable in the swings in cash flow per share.

Microsoft Total Revenues, Operating Income, and Net Income (Chart) Below is a chart of quarterly total revenues, quarterly operating income, and quarterly net income. Current Total Revenues of $17.37B is a +6% QoQ increase from prior calendar Q1 2011 of $16.43B. The all-time high was $19.95B in calendar Q4 2010. Current Operating Income of $6.17B is above the prior calendar Q1 2011 of $5.71B, but below the recent peak of $8.17B in calendar Q4 2010. The all-time high was $8.51B in calendar Q4 2009. Current Net Income of $5.87B is a +12% QoQ increase from prior calendar Q1 2011 of $5.23B. The recent peak was $6.63B in calendar Q4 2010 and the all-time high was $6.66B in calendar Q4 2009.

Microsoft Gross Margin, Operating Margin, and Net Margin (Chart) Below is a chart of quarterly gross margin, quarterly operating margin, and quarterly net margin. Current Gross Margin of 78.65% is a 3-quarter high. A multi-year low was set in calendar Q4 2010 of 75.78%. Microsoft had been operating in the past at the 80+% area. This has been a slight negative for Microsoft's latest 3 quarters, not maintaining an 80+% gross profit margin. Current Operating Margin of 35.53% is an increase from the prior calendar Q1 2011 of 34.75, which was a multi-year low. Microsoft had been operating in the past at the 40+% area. This also has been a slight negative for Microsoft in 3 of the past 4 quarters. Current Net Margin of 33.82 is % is an outstanding 6-quarter high. The increase is attributable to a lower average income tax rate due to a higher proportion of international sales. The multi-year peak has been 35.02% in calendar Q4 2009.

Microsoft Return on Assets (Chart) Below is a chart of annual return on average assets per quarter. The total net income for the most recent 4 quarters is divided into average assets for the most recent 4 quarters to obtain a rolling annualized ROA, an annualized return on average assets for the 12 months (4 quarters) ended. The ROA dipped during the Global Recession but has since rebounded. The current Return on Assets of 24.20% is an excellent 10-quarter high, the highest since calendar Q4 2008. This is an even more amazing ROA when taken into consideration that Microsoft's total assets have now exceeded $100 billion.

Microsoft Growth Rates (Chart) Below is a chart of the quarterly (QoQ, Q/Q, quarterly change) growth rates for total revenues and earnings per share. Current Total Revenues of +5.72% was a reversal of prior calendar Q1 2011 of -17.67%. Total Revenues have increased 4 of the past 5 quarters and and 5 of the past 7 quarters. Current Earnings per Share

Microsoft Reports Record Fiscal Fourth Quarter and Full Year Results

Microsoft Office, server products, and Xbox 360 drive $17.37 billion of fourth-quarter revenue

REDMOND, Wash. - Jul. 21, 2011 - Microsoft Corp. today announced record fourth-quarter revenue of $17.37 billion for the quarter ended June 30, 2011, an 8% increase from the same period of the prior year. Operating income, net income, and diluted earnings per share for the quarter were $6.17 billion, $5.87 billion, and $0.69 per share, which represented increases of 4%, 30%, and 35%, respectively, when compared with the prior year period.

For the fiscal year ended June 30, 2011, Microsoft reported record revenue of $69.94 billion, a 12% increase from the prior year. Operating income, net income, and diluted earnings per share for the year were $27.16 billion, $23.15 billion, and $2.69, which represented increases of 13%, 23%, and 28%, respectively, when compared with the prior year.

“Throughout fiscal 2011, we delivered to market a strong lineup of products and services which translated into double-digit revenue growth, and operating margin expansion,” said Peter Klein, chief financial officer at Microsoft. “Our platform and cloud investments position us for long-term growth.”

Microsoft Business Division revenue for the fourth quarter grew 7% and 16% for the full year. Office 2010 continues to be the fastest-selling version of Microsoft Office in history with over 100 million licenses sold. In June, Microsoft released Office 365 with familiar Microsoft Office collaboration and productivity tools delivered through the cloud.

Server & Tools revenue grew 12% for the fourth quarter, the fifth consecutive quarter of double-digit growth, and grew 11% for the full year. Windows Server, System Center, and SQL Server continued to drive revenue growth in the segment.

Windows and Windows Live Division revenue declined 1% for the fourth quarter and revenue for the full year decreased 2%. Excluding the impact of the prior year Windows 7 launch and revenue deferral, we estimate full-year revenue growth was in line with PC market growth of 2% to 4%. Windows 7 has sold over 400 million licenses and business deployments continue to accelerate. During the quarter, Microsoft unveiled a preview of the next version of Windows, codenamed Windows 8, featuring a new user interface and application experience.

Online Services Division revenue grew 17% for the fourth quarter and 15% for the full year, primarily driven by increases in search revenue. Bing's U.S. search share increased 340 basis points year-over-year to 14.4% this quarter. Microsoft also released new features that incorporate the Facebook social graph to help users make better decisions based on their social connections.

Entertainment & Devices Division revenue grew 30% for the fourth quarter and 45% for the full year, due to the ongoing momentum of the console, Kinect, and Xbox Live. Xbox 360 has been the top-selling game console in the U.S. over the past twelve months. At E3 in June, Microsoft highlighted its upcoming game lineup, Xbox Live content partnerships, and enhanced content discovery using Bing and Kinect.

"A strong year of double-digit increases in revenue and earnings is a real credit to all of our Microsoft employees and partners around the world. We continue to see strong business demand across all of our products, from small businesses all the way up to the largest global enterprises,” said Kevin Turner, chief operating officer at Microsoft. "Our move to cloud services continues with the release and momentum of Office 365 and growth in Windows Azure. We’re providing our customers seamless and powerful ways to move to the cloud, and we are well positioned for the coming year.”

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.

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