Microsoft Corporation 10-K Summary: Fiscal Year Ended June 30, 1994
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended June 30, 1994. Microsoft Corporation operates in a single business segment: the development, manufacture, marketing, licensing, and support of software products for personal computers (PCs), office machines, and personal information devices. The company is organized into three main groups: Products, Sales and Support, and Operations. Key product lines include operating systems (MS-DOS, Windows, Windows NT), desktop applications (Microsoft Office, Word, Excel), developer tools, and consumer software.
Key Financial Metrics
The filing incorporates detailed financial statements by reference to the 1994 Annual Report to Shareholders; specific revenue, profit, and cash flow totals are not explicitly listed in the provided text. However, the following specific metrics are disclosed:
- Research and Development (R&D): $610 million for fiscal 1994, representing 13.1% of net revenues.
- Advertising Costs: $107 million for fiscal 1994.
- Royalties: $60 million for fiscal 1994.
- Allowance for Doubtful Accounts: Ended the period at $92 million.
- Market Capitalization: As of September 9, 1994, the aggregate market value of common stock held by non-affiliates was approximately $19.7 billion.
- Shares Outstanding: 580,345,861 shares as of September 9, 1994.
- Employees: 15,257 total employees as of June 30, 1994 (10,264 domestic, 4,993 international).
Material Changes and Operational Highlights
Microsoft reported significant increases in R&D spending, rising from $470 million in 1993 to $610 million in 1994. Advertising costs increased from $101 million in 1993 to $107 million in 1994. The company is in the development phase of Windows 95, a new 32-bit operating system intended to replace MS-DOS and Windows. The company also expanded its physical footprint, constructing a 225,000-square-foot building in Redmond and initiating construction on an additional 675,000 square feet of office space. The company maintains a strong cash position, though specific liquidity figures are not detailed in the text provided.
Outlook, Risks, and Management Commentary
Outlook: Management plans to spend more than $100 million in 1995 on a broad advertising campaign emphasizing Microsoft brand identity. The company continues to prioritize rapid product development to respond to technological changes.
Risks and Contingencies:
- Competition: The market is intensely competitive with rivals including Lotus Development, Oracle, Novell, and large OEMs like IBM and Apple.
- Intellectual Property: Software piracy is identified as a persistent problem, particularly in international markets.
- Legal Proceedings: The company is involved in litigation with Apple Computer, Inc. and Wang Laboratories, Inc.
- International Operations: Foreign operations are subject to governmental regulations, import restrictions, and foreign exchange rate fluctuations.
- Personnel: Success is highly dependent on the ability to attract and retain qualified employees in a competitive industry.
Investor Verification Checklist
- Verify total net revenues and net income for fiscal 1994 in the incorporated 1994 Annual Report to Shareholders (pages 2, 8, 9, 10, 13-17).
- Review the "Selected Financial Data" (incorporated by reference) to confirm year-over-year growth trends.
- Examine the Notes to Financial Statements regarding customers representing more than 10% of revenues.
- Assess the status and potential financial impact of ongoing litigation with Apple Computer and Wang Laboratories.
- Monitor the market reception and adoption rates of the upcoming Windows 95 release.