Microsoft Announces Solid Fiscal Year 2002 Results

Redmond, Wash., July 18, 2002 — Microsoft Corp. today announced revenue of $7.25 billion for the quarter ended June 30, 2002, a 10 percent increase over the $6.58 billion for the same quarter last year. Operating income for the fourth quarter was $2.87 billion, compared to $2.75 billion in the same period last year. Net income and diluted earnings per share for the fourth quarter of 2002 were $1.53 billion and $0.28, which included an after-tax charge for investment impairments of $806 million or $0.15. For the same period of the previous year, net income and diluted earnings per share were $65 million and $0.01, including after-tax charges for investment impairments of $2.63 billion or $0.47.

The company also announced revenue of $28.37 billion for the full fiscal year ended June 30, 2002, a 12 percent increase over the $25.30 billion reported last year. Operating income was $11.91 billion, compared to $11.72 billion in the same period last year. Net income and diluted earnings per share for fiscal year 2002 were $7.83 billion and $1.41, which included after-tax charges for investment impairments of $0.53, estimated expenses in connection with consumer class action lawsuits recorded in the December 2001 quarter of $0.08, and a one-time gain on the sale of Expedia recorded in the March 2002 quarter of $0.15. For the previous year, net income and diluted earnings per share were $7.35 billion and $1.32, which included after-tax charges for investment impairments of $0.58.

“The fourth quarter capped a great year for Microsoft, with solid revenue growth, successful product launches and our continued focus on managing costs. Robust customer demand for Windows XP and other desktop software enabled us to deliver strong operating results this quarter, in spite of continued uncertainty in the technology markets,” said John Connors, chief financial officer at Microsoft. “While the current environment remains challenging, we’re making important investments in product development, marketing and in our sales force that will position us for success in the current year and beyond.”

Desktop software revenue was $4.97 billion, up 9 percent in the June quarter. For the full fiscal year, revenue was $18.90 billion, up 7 percent from the prior year. This solid performance was driven by strong growth in client operating systems revenue of 20 percent and 16 percent for the quarter and year, respectively. Demand was particularly robust for the Professional versions of Windows, leading revenue to outgrow the personal computer systems market. Desktop applications revenue also grew on the strength of continuing demand for Office by enterprise customers. Further, Microsoft Visio and Microsoft Project both achieved record sales in the fourth quarter.

Enterprise software and services revenue was $1.35 billion for the fourth quarter, up 4 percent from the prior year. For the fiscal year, revenue was $5.11 billion, up 6 percent from the prior year. Revenue for the Windows Server family of products grew by 13 percent this quarter and 10 percent for the full year, outperforming the underlying server hardware market by a wide margin. “Microsoft SQL Server continued to outgrow its competition, and we were thrilled to see our other server products, such as BizTalk Server and Content Management Server, gain traction and perform nicely,” said Paul Flessner, senior vice president, of the .NET Enterprise Server Division at Microsoft. “With the upcoming releases of Windows .NET Server and other new server releases, such as Exchange and Content Management Server, we believe customers will continue to recognize the benefits of increased business value and decreased total cost of ownership achieved by implementing solutions, including XML Web services, on the Microsoft platform.”

Business Outlook

Management offers the following guidance for the quarter ending Sept. 30, 2002:

  • Revenue is expected to be in the range of $7.0 billion and $7.1 billion.

  • Operating income is expected to be in the range of $2.9 billion and $3.0 billion.

  • Diluted earnings per share is expected to be either $0.42 or $0.43.

Management offers the following guidance for the full fiscal year ending June 30, 2003:

  • Revenue is expected to be in the range of $31.4 billion and $32.0 billion.

  • Operating income is expected to be in the range of $13.3 billion and $13.6 billion.

  • Diluted earnings per share is expected to be in the range of $1.85 to $1.91.

Webcast Details

Microsoft will hold an audio webcast at 2:30 pm PDT (5:30 p.m. EDT) today with John Connors to discuss details regarding the company’s performance for the quarter and other forward-looking information. The session may be accessed at http://www.microsoft.com/msft/ . The webcast will be available for replay through the close of business on Friday, July 26, 2002.

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: entry into markets with vigorous competition, market acceptance of new products and services, continued acceptance of existing products and services, changes in licensing programs, product price discounts, delays in product development and related product release schedules, and reliance on sole source suppliers for key components of Xbox that could result in component shortages and delays in product delivery, any of which may cause revenues and income to fall short of anticipated levels; obsolete inventory or product returns by distributors, resellers and retailers; warranty and other claims on hardware products such as Xbox; changes in the rate of PC shipments; technological shifts; customer demand for our product and services; the support of third party software developers for new or existing platforms; the availability of competitive products or services such as the Linux operating system at prices below our prices or for no charge; the affects of the Consent Decree in United States v. Microsoft on the Windows operating system and server business, including those associated with protocol and other disclosures required by the Decree and the ability of PC manufacturers to hide end user access to certain new Windows features; the ability to have access to MSN service distribution channels controlled by third parties; the risk of unanticipated increased costs for network services; the continued ability to obtain or protect intellectual property rights; changes in product and service mix; maturing product life cycles; product sale terms and conditions; the company’s ability to efficiently integrate acquired businesses such as Navision a/s; implementation of operating cost structures that align with revenue growth; the financial condition of our customers and vendors; unavailability of insurance; uninsured losses; adverse results in litigation; the effects of terrorist activity and armed conflict such as disruptions in general economic activity and changes in our operations and security arrangements; general economic conditions that affect demand for computer hardware or software; currency fluctuations; trade sanctions or changes to U.S. tax law resulting from the World Trade Organization decision with respect to the extraterritorial income provisions of U.S. tax law; and financial market volatility or other changes affecting the value of our investments, such as the AT & T securities held by Microsoft, that may result in a reduction in carrying value and recognition of losses including impairment charges.

For further information regarding risks and uncertainties associated with Microsoft’s business, please refer to the “Management’s Discussion and Analysis of Results of Operations and Financial Condition” 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 Microsoft’s investor relations website .

All information in this release is as of July 18, 2002. 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.

Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services and Internet technologies for personal and business computing. The company offers a wide range of products and services designed to empower people through great software – any time, any place and on any device.

Microsoft, Windows, Visio and BizTalk are either registered trademarks or trademarks of Microsoft Corp. in the United States and/or other countries. The names of actual companies and products mentioned herein may be the trademarks of their respective owners.

Note to editors: If you are interested in viewing additional information on Microsoft, please visit the Microsoft Web page at http://microsoft.com/presspass/ on Microsoft’s corporate information pages. Shareholder and financial information as well as today’s 2:30 p.m. PDT conference call with investors and analysts is available at http://www.microsoft.com/msft/ .

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