Microsoft Corporation 10-K Summary
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended June 30, 1999. Microsoft Corporation develops, manufactures, licenses, and supports software products for PCs, servers, intelligent devices, and the Internet. The company is organized into three primary segments: Windows Platforms (operating systems and server applications), Business Productivity Applications and Developer (Office suite and development tools), and Consumer, Commerce, and Other (MSN, WebTV, and retail products). As of June 30, 1999, the company employed 31,396 full-time employees globally.
Key Financial Metrics
The filing text incorporates specific financial statements (Income Statements, Balance Sheets, Cash Flows) by reference to the 1999 Annual Report to Shareholders and does not explicitly list the total revenue, net income, or cash flow figures within the provided text. However, the following specific data points are disclosed:
- Research and Development (R&D): $2.81 billion for fiscal year 1999, representing 15.0% of revenue.
- Market Capitalization: The aggregate market value of common stock held by non-affiliates as of September 10, 1999, was approximately $375.04 billion.
- Shares Outstanding: 5,141,508,124 shares as of September 10, 1999.
- Debt and Liquidity: Specific values for total debt, cash equivalents, and liquidity ratios are not provided in the text; they are incorporated by reference.
Material Changes and Operational Highlights
While specific year-over-year financial growth percentages are not listed in the text, the following operational changes and trends are noted:
- R&D Investment: R&D spending increased from $2.46 billion in 1998 to $2.81 billion in 1999, though the percentage of revenue decreased slightly from 17.0% to 15.0%.
- Product Launches: The company released Windows 98 in June 1998 and Microsoft Office 2000 during the period. Windows 98 introduced Web-oriented interfaces and USB support.
- Acquisitions and Mergers: The company issued 507,140 common shares to acquire assets from Bruce Carver and Associates, Jump Networks, Inc., and OmniBrowse, Inc.
- Strategic Shifts: Sales mix has shifted from packaged products to OEM and organizational licenses. Online distribution of software is increasing.
- Real Estate: The company completed construction of 420,000 square feet of office space and leased an additional 420,000 square feet in the Puget Sound region. A new 517,000 square-foot campus in the San Francisco Bay Area was scheduled to open in fall 1999.
Outlook, Risks, and Management Commentary
Management Commentary: Management emphasizes a strategy of broad product lines for IT professionals, knowledge workers, and consumers. The company is committed to continuing high expenditures on research and product development to maintain technical control and rapid innovation.
Risks and Contingencies:
- Competition: Intense competition exists from IBM, Sun Microsystems, Oracle, AOL (Netscape), and open-source alternatives like Linux. Competitors are collaborating to shift software from PCs to server-based or Web-based models.
- Technological Change: Rapid shifts in computing paradigms (e.g., from PC to Internet-based devices) could render existing technologies less valuable.
- Software Piracy: The company faces significant revenue loss due to unlawful copying and distribution of its software.
- International Operations: Risks include governmental regulations, import restrictions, and foreign exchange rate fluctuations.
- Legal Proceedings: Specific details on legal contingencies are incorporated by reference to the Annual Report and are not detailed in this text.
Investor Verification Checklist
- Verify total revenue, net income, and operating margins for fiscal 1999 by reviewing the 1999 Annual Report to Shareholders (incorporated by reference in Exhibit 13.4).
- Review the Notes to Financial Statements for details on legal contingencies and foreign exchange hedging strategies.
- Confirm the specific impact of the Windows 98 and Office 2000 launches on segment revenue growth.
- Assess the financial impact of the acquisitions (Jump Networks, OmniBrowse) and the issuance of 507,140 shares.
- Examine the Selected Financial Data (Exhibit 13.2) for a five-year trend analysis of profitability and cash flow.