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Microsoft CorporationMicrosoft Corporation
John ConnorsJohn ConnorsChief Financial OfficerChief Financial Officer
January, 2004January, 2004
This presentation may contain statements that This presentation may contain statements that
are forward looking. These statements are are forward looking. These statements are
based on current expectations and based on current expectations and
assumptions that are subject to risks and assumptions that are subject to risks and
uncertainties. Actual results could differ uncertainties. Actual results could differ
materially because of factors listed in the last materially because of factors listed in the last
page of this presentation, discussed in previous page of this presentation, discussed in previous
press releases, and in the management press releases, and in the management
discussion and analysis section of the discussion and analysis section of the
company’s 2004 form 10Qs, 2003 form 10-Q company’s 2004 form 10Qs, 2003 form 10-Q
and other reports and filings with the Securities and other reports and filings with the Securities
and Exchange Commission. We do not and Exchange Commission. We do not
undertake any duty to update any forward undertake any duty to update any forward
looking statements. looking statements.
Q2-04 ResultsQ2-04 Results Total Revenue - $10.15 billionTotal Revenue - $10.15 billion
19% growth versus last year19% growth versus last year 20+% growth Client, IW, Server & Tools20+% growth Client, IW, Server & Tools
Operating Income - $1.48 billionOperating Income - $1.48 billion $1.0 billion normal stock based compensation$1.0 billion normal stock based compensation $2.2 billion employee Stock Option Transfer $2.2 billion employee Stock Option Transfer
ProgramProgram
Earnings per Share - $0.14Earnings per Share - $0.14 $0.06 normal stock based compensation$0.06 normal stock based compensation $0.14 Stock Option Transfer Program$0.14 Stock Option Transfer Program EPS Guidance for Q2 was $0.23 to $0.24 EPS Guidance for Q2 was $0.23 to $0.24
FY2004 Guidance*FY2004 Guidance*Q3Q3 Revenue: $8.6 to $8.7 billionRevenue: $8.6 to $8.7 billion Operating Income: $3.0 to $3.1 billion Operating Income: $3.0 to $3.1 billion
(including stock comp $750 million)(including stock comp $750 million) EPS: $0.23 to $0.24 (stock comp $0.05)EPS: $0.23 to $0.24 (stock comp $0.05)
Full FY 2004Full FY 2004 Revenue: $35.6 to $35.9 billionRevenue: $35.6 to $35.9 billion Operating Income: $10.3 to $10.6 billion Operating Income: $10.3 to $10.6 billion
(including stock comp $5.7 billion)(including stock comp $5.7 billion) EPS $0.82 to $0.83 (stock comp $0.35)EPS $0.82 to $0.83 (stock comp $0.35)
* Guidance as of Jan 22, * Guidance as of Jan 22, 20042004
1
1
Includes stock based compensation charge of approximately $0.35 (inclusive of Includes stock based compensation charge of approximately $0.35 (inclusive of employee Stock Option Transfer Program $0.14)employee Stock Option Transfer Program $0.14)
Trailing 3 calendar year Trailing 3 calendar year revenue and operating profit revenue and operating profit CAGR*CAGR*
* b* based on three year growth figures for operating income, excluding certain items ased on three year growth figures for operating income, excluding certain items and stock based compensation expense for calendar year 2003. A reconciliation of and stock based compensation expense for calendar year 2003. A reconciliation of the non-GAAP measures presented above to to reported GAAP operating income for the non-GAAP measures presented above to to reported GAAP operating income for the relevant periods can be found in slide #13.the relevant periods can be found in slide #13.
9%
0%
12%
13%
2%
9%
0%
24%
12%
-3%
-5%
-4%
-1%
-7%
-10% 0% 10% 20% 30%
Cisco
Dell
IBM
Intel
Oracle
SAP ($)
MSFT OI
REV
REV OIMSFT $10,492 $4,400SAP ($) $2,135 $1,024Oracle ($1,087) ($165)Intel ($3,585) ($2,054)IBM $735 ($7)Dell $9,564 $796Cisco ($3,678) $294
3 year growth ($)
What does our business What does our business model look like today?*model look like today?*
Sale and Delivery Method
License**42%
Annuity26%
OEM32%
Diversified Business ModelDiversified Business Model
Customer Type
Enterprise40%
Consumer21%
SMB39%
** Includes ** Includes MSN, Xbox, MSN, Xbox,
ServicesServices
*Sale and Delivery method based on trailing 4 quarter billings. Customer type data based on fiscal year to *Sale and Delivery method based on trailing 4 quarter billings. Customer type data based on fiscal year to date information.date information.
How do we sell our How do we sell our products?*products?*Client Annuity
15%
License10%
OEM75%
Information Worker
Annuity40%
License40%
OEM20%
Server & Tools
Annuity40%
License50%
OEM10%
*Based on trailing 4 quarter data.*Based on trailing 4 quarter data.
How should we look at How should we look at unearned revenue?unearned revenue?
$7,915 $7,852
$1,100 $600
$0
$2,000
$4,000
$6,000
$8,000
$10,000
6/ 30/ 03 6/ 30/ 04 EST
+ + 7%7%
Normalized FY04 unearned growth Normalized FY04 unearned growth of ~ 7%of ~ 7%
What is the impact of What is the impact of stock compensation?stock compensation?
$5,745
FY02 FY03 FY04E FY05E FY06E FY07E FY08E
Employee Stock Option Transfer program $2.2 Employee Stock Option Transfer program $2.2 billionbillion
Issued 57 million shares for stock awards in Issued 57 million shares for stock awards in Q1-04Q1-04
Employee Stock Employee Stock Option Transfer Option Transfer
Program = $2.2B Program = $2.2B
Employee Option/Stock Overhang*
(% of shares outstanding)
6/30/01 17%
6/30/02 15%
6/30/03 14%
12/31/03 11%
*excluding options *excluding options transferred to JP transferred to JP Morgan in connection Morgan in connection with the employee with the employee stock option transfer stock option transfer program.program.
Are you making progress on Are you making progress on emerging businesses emerging businesses performance?performance?Operating Income (Loss) % Net Operating Income (Loss) % Net Revenue*Revenue*
BusinessBusiness
SolutionSolutionss
MEDMED MSNMSN
Home Home
& Ent.& Ent.
FY02FY02 (64)%(64)% (194)%(194)% (39)(39)%% (36)%(36)%
FY03FY03 (53)%(53)% (114)% (114)% (17)(17)%% (34)%(34)%
FY04FY04Continue to improve the profitability of Continue to improve the profitability of emerging businessesemerging businesses
//
*Presented in accordance with SFAS 131, *Presented in accordance with SFAS 131, Disclosures about Segments of an Disclosures about Segments of an Enterprise and Related InformationEnterprise and Related Information
How should we begin to How should we begin to model FY05?model FY05? Economy / IT spendEconomy / IT spend Hardware demandHardware demand
PC unit demandPC unit demand Server demandServer demand
Foreign exchangeForeign exchange Product successProduct success
Office 2003Office 2003 Windows Server 2003Windows Server 2003 Exchange 2003Exchange 2003 Small Business Server 2003Small Business Server 2003 YukonYukon
Upgrade Advantage conversionUpgrade Advantage conversion Equity compensationEquity compensation Focus on cost efficacy and operating income Focus on cost efficacy and operating income
growthgrowth
Open source continues to be a threatOpen source continues to be a threat Security is top of mindSecurity is top of mind Broad IT recovery startingBroad IT recovery starting Sales organization execution Sales organization execution
improvingimproving Excellent product momentum – Excellent product momentum –
Office 2003, Windows Server 2003, Office 2003, Windows Server 2003, Small Business Server 2003Small Business Server 2003
Closing thoughtsClosing thoughts
Reconciliation of non-GAAP Reconciliation of non-GAAP measures found in slide #5: measures found in slide #5: Trailing 3 calendar year revenue Trailing 3 calendar year revenue and operating profit CAGR*and operating profit CAGR*
Calendar Year Calendar Year 20002000
Calendar Year 2003Calendar Year 2003
Three Three Months Months EndedEnded
Operating Operating Income (GAAP)Income (GAAP)
Operating Income Operating Income (GAAP)(GAAP)
Stock based Stock based compensation compensation
expenseexpense
Other (settlement Other (settlement of AOL lawsuit and of AOL lawsuit and other legal costs) other legal costs)
Non-GAAP Microsoft Non-GAAP Microsoft figure in Slide 5figure in Slide 5
March 31March 31 $2,728$2,728 $2,744$2,744 $978$978 -- $3,722$3,722
June 30June 30 $2,524$2,524 $1,540$1,540 $666$666 $796$796 $3,002$3,002
September September 3030
$2,777$2,777 $3,148$3,148 $1,014$1,014 -- $4,162$4,162
December December 3131
$3,194$3,194 $1,475$1,475 $3,232$3,232 -- $4,707$4,707
TotalTotal $11,223$11,223 $8,907$8,907 $5,890$5,890 $796$796 $15,593$15,593
GAAP operating income for calendar year 2003 was $8,907 vs. adjusted operating income for calendar year 2003 (as noted in slide #5) of $15,593. GAAP operating income decreased by $2,316 from calendar year 2000 to 2003 resulting in compounded annual growth of (7.4)%. Adjusted operating income increased by $4,370 over the same period, resulting in compounded annual growth of 11.6% as presented in slide #5. Note also that calendar year 2000 operating income was not restated for the adoption of SFAS 123.
Slide #5 in this presentation includes three year growth figures for operating income, Slide #5 in this presentation includes three year growth figures for operating income, excluding certain items and stock based compensation expense for calendar year 2003. Set excluding certain items and stock based compensation expense for calendar year 2003. Set forth below is a reconciliation of the non-GAAP measure presented in that slide to GAAP forth below is a reconciliation of the non-GAAP measure presented in that slide to GAAP operating income for those periods. operating income for those periods.
© 2004 Microsoft Corporation. All rights reserved.© 2004 Microsoft Corporation. All rights reserved.This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.in this summary.