Microsoft Corporation 10-K Summary: Fiscal Year Ended June 30, 1998
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended June 30, 1998. Microsoft Corporation develops, manufactures, licenses, and supports a wide range of software products, including operating systems (Windows 98, Windows NT), server applications (BackOffice), productivity tools (Office 97), and interactive media (MSN, WebTV). The company operates through three main groups: Product, Sales and Support, and Operations. As of June 30, 1998, the company employed 27,055 full-time employees globally.
Key Financial Metrics
The provided filing text incorporates financial statements by reference and does not contain the specific numerical values for revenue, profit, cash flow, or debt. However, the following data points are explicitly stated:
- Research and Development (R&D): $2.50 billion for fiscal 1998, representing 17.3% of revenue.
- Market Capitalization: The aggregate market value of common stock held by non-affiliates as of September 11, 1998, was approximately $176.18 billion.
- Shares Outstanding: 2,484,635,670 shares as of September 11, 1998.
- Backlog: Not significant due to prompt shipping practices.
Note: Specific figures for total revenue, net income, operating margins, total debt, and liquidity ratios are not present in the provided text as they are incorporated by reference from the 1998 Annual Report to Shareholders.
Material Changes and Operational Highlights
- Product Launches: Released Windows 98 in June 1998, featuring a Web-oriented interface and USB support. Released Microsoft Office 97 with enhanced Internet integration.
- Acquisitions: Acquired WebTV Networks, Inc. in August 1997 to expand into Internet access via television.
- Strategic Shifts: Sales mix has shifted from packaged products to OEM and organizational licenses. Increased focus on Internet and intranet technologies.
- Joint Ventures: Established 50% ownership in DreamWorks Interactive, MSNBC Cable, and MSNBC Interactive News. Invested in TransPoint (formerly MSFDC) for electronic bill payment.
- Facilities: Completed construction of 565,000 square feet of office space in Redmond, WA, with an additional 418,000 square feet under construction. Entered a build-to-suit lease for a 515,000 square foot campus in the San Francisco Bay Area.
Outlook, Risks, and Management Commentary
Management Outlook: The company is committed to continuing high expenditures on research and product development to maintain technical control and rapid innovation. The strategy emphasizes a broad line of software products for business and personal use, marketed through multiple channels.
Key Risks and Contingencies:
- Competition: Intense competition in all business areas, including operating systems (IBM, Apple, UNIX, Linux), desktop applications (IBM/Lotus, Corel), and Internet services (Netscape, AOL). Competitors are collaborating on "thin client" strategies that could challenge Microsoft's PC-centric model.
- Technological Change: Rapid pace of change in the PC software industry requires constant innovation; failure to adapt could render existing technologies less valuable.
- Intellectual Property: Constant competition from software pirates unlawfully copying copyrighted products.
- International Operations: Risks include governmental regulations, import restrictions, and foreign exchange rate fluctuations.
- Legal Proceedings: Specific details on contingencies are incorporated by reference from the Annual Report and are not detailed in this text.
Investor Verification Checklist
- Verify the specific Revenue, Net Income, and EPS figures in the 1998 Annual Report to Shareholders (referenced in Item 6 and Item 8).
- Review the Notes to Financial Statements (Item 8) for details on legal contingencies and foreign operations.
- Confirm the impact of the Windows 98 launch on Q4 1998 revenue recognition.
- Assess the financial performance and integration status of the WebTV acquisition.
- Monitor the competitive landscape regarding Linux adoption and "thin client" server strategies mentioned in the Competition section.