msnbc.com
updated 4/22/2004 6:57:35 PM ET 2004-04-22T22:57:35

Microsoft Corp. Thursday reported revenues that were far higher than expected for the latest quarter, although earnings fell sharply due to the one-time costs of legal settlements.

Redmond, Washington-based Microsoft reported a profit of $1.32 billion, or 12 cents per share, for its fiscal third quarter, down 39 percent from $2.14 billion, or 20 cents per share, a year earlier. Excluding more than $2.5 billion in charges for legal issues, Microsoft said it had a profit of 34 cents per share, much higher than the 29 cents a share expected by analysts, according to Thomson Financial.

Revenues were $9.18 billion, up 17 percent from $7.84 billion a year ago. Analysts had been looking for revenue of about $8.66 billion.

The results included stock compensation expense of $501 million and a $1.89 billion charge related to a settlement with Sun Microsystems Inc. and a fine imposed by the European Commission.

(MSNBC is a joint venture of Microsoft and NBC.)

Microsoft chief financial officer John Connors said all the company's business "met or exceeded our expectations" for the quarter.

"Overall corporate IT spending continued to improve, and we expect to see healthy demand through the end of our fiscal year," he said in a news release.

Microsoft stock was up nearly $2 to over $27 in heavy, extended-hours trading after the earnings were released, according to CNBC.

Microsoft said its results were diminished by a $2.53 billion pre-tax charge for legal settlements and fines. In early April Microsoft agreed to pay Sun Microsoft $2 billion to settle a long-running battle over technology lawsuit. Separately Microsoft was ordered to pay a $613 million fine by the European Union for antitrust violations last month. Microsoft plans to appeal, although it took a charge against earnings to account for the fine.

In a conference call with analysts and reporters, Connors said the strong results stemmed from computer sales that were much stronger than expected, especially to business buyers. The vast majority of business computers are loaded with Microsoft's Windows operating system and Office applications.

"We expect the improvement we saw in corporate spending to continue for the remainder of the fiscal year," he said. "Corporate profits are up, and businesses seem more willing to invest in IT projects."

Microsoft had cash and short-term investments of more than $56 billion on its balance sheet at the end of the quarter, up from $52.8 billion three months earlier. Microsoft's enormous cash hoard has been a topic of growing concern to many investors, who have been pressing the company for an explanation of what it plans to do with the money.

Connors said in the conference call that the company would be disclosing more plans soon, now that it has resolved most of its major legal issues, including antitrust cases brought by the federal government and many states.

"We're really hearing folks wanting more direction in terms of our cash strategy," he said. "We  will have a lot more to say no later than the analyst meeting (in July.)"

Microsoft said revenue for the current fiscal fourth quarter would be between $8.9 billion and $9 billion. Earnings were projected at 28 cents per share, excluding stock-based compensation expense, compared with the 27 cents projected by  analysts.

For fiscal 2005, which begins July 1, revenue was projected at $37.8 billion to $38.2 billion, slightly below the consensus of $38.5 billion.  But earnings, excluding the stock-based compensation expense, were projected at $1.31-$1.33, above the analyst projection of $1.28.

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