1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO ____
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Commission File Number 0-14278
MICROSOFT CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1144442
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MICROSOFT WAY, REDMOND, WASHINGTON 98052-6399
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (206) 882-8080
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of
January 31, 1997 was 1,203,155,525.
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MICROSOFT CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
a) Income Statements
for the Three and Six Months Ended December 31, 1995 and 1996............ 1
b) Balance Sheets
as of June 30, 1996 and December 31, 1996................................ 2
c) Cash Flows Statements
for the Six Months Ended December 31, 1995 and 1996...................... 3
d) Notes to Financial Statements............................................ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders.......................... 8
Item 6. Exhibits and Reports on Form 8-K............................................. 8
SIGNATURE...................................................................................... 9
3
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
MICROSOFT CORPORATION
INCOME STATEMENTS
(In millions, except earnings per share)(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31 December 31
1995 1996 1995 1996
-------------------------------------------------------------------------------------------------
Net revenues $ 2,195 $ 2,680 $ 4,211 $ 4,975
-------------------------------------------------------------------------------------------------
Operating expenses:
Cost of revenues 330 296 652 546
Research and development 313 485 615 917
Sales and marketing 690 737 1,311 1,362
General and administrative 76 81 139 167
-------------------------------------------------------------------------------------------------
Total operating expenses 1,409 1,599 2,717 2,992
-------------------------------------------------------------------------------------------------
Operating income 786 1,081 1,494 1,983
Interest income 76 105 142 197
Other income (expense) 23 (46) 19 (95)
-------------------------------------------------------------------------------------------------
Income before income taxes 885 1,140 1,655 2,085
Provision for income taxes 310 399 581 730
-------------------------------------------------------------------------------------------------
Net income 575 741 1,074 1,355
Preferred stock dividends 1 1
-------------------------------------------------------------------------------------------------
Net income available for common shareholders $ 575 $ 740 $ 1,074 $ 1,354
=================================================================================================
Earnings per share (1) $ 0.45 $ 0.57 $ 0.84 $ 1.04
=================================================================================================
Weighted average shares outstanding (1) 1,276 1,304 1,278 1,299
=================================================================================================
(1) Share and per share amounts for the three and six months ended December 31,
1995 have been restated to reflect a two-for-one stock split in December
1996.
See accompanying notes.
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MICROSOFT CORPORATION
BALANCE SHEETS
(In millions)
- --------------------------------------------------------------------------------
June 30 Dec. 31
1996 1996(1)
---------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and short-term investments $ 6,940 $ 9,160
Accounts receivable 639 975
Other 260 307
---------------------------------------------------------------------------------------
Total current assets 7,839 10,442
Property, plant, and equipment 1,326 1,322
Equity investments 675 804
Other assets 253 218
---------------------------------------------------------------------------------------
Total assets $10,093 $12,786
=======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 808 $ 848
Accrued compensation 202 289
Income taxes payable 484 480
Unearned revenues 560 1,013
Other 371 514
---------------------------------------------------------------------------------------
Total current liabilities 2,425 3,144
---------------------------------------------------------------------------------------
Minority interest 125
---------------------------------------------------------------------------------------
Put warrants 635
---------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock -
shares authorized 100; outstanding 12.5 980
Common stock and paid-in capital -
shares authorized 4,000; outstanding 1,194 and 1,198 2,924 3,541
Retained earnings 3,984 5,121
---------------------------------------------------------------------------------------
Total stockholders' equity 6,908 9,642
---------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $10,093 $12,786
=======================================================================================
(1) Unaudited
See accompanying notes.
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MICROSOFT CORPORATION
CASH FLOWS STATEMENTS
(In millions)(Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended
December 31
1995 1996
-------------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS
Net income $ 1,074 $ 1,355
Depreciation and amortization 147 306
Current liabilities 892 709
Accounts receivable (187) (326)
Other current assets (25) (43)
-------------------------------------------------------------------------
Net cash from operations 1,901 2,001
-------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
Common stock issued 173 314
Common stock repurchased (472) (1,024)
Preferred stock issued 980
Stock option income tax benefits 71 226
-------------------------------------------------------------------------
Net cash from (used for) financing (228) 496
-------------------------------------------------------------------------
CASH FLOWS USED FOR INVESTMENTS
Additions to property, plant, and equipment (204) (216)
Equity investments and other (203) (66)
Short-term investments (906) (1,725)
-------------------------------------------------------------------------
Net cash used for investments (1,313) (2,007)
-------------------------------------------------------------------------
Net change in cash and equivalents 360 490
Effect of exchange rates on cash 1 5
Cash and equivalents, beginning of period 1,962 2,601
-------------------------------------------------------------------------
Cash and equivalents, end of period 2,323 3,096
Short-term investments, end of period 3,694 6,064
-------------------------------------------------------------------------
Cash and short-term investments, end of period $ 6,017 $ 9,160
=========================================================================
See accompanying notes.
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MICROSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
In the opinion of management, the accompanying balance sheets and related
interim statements of income and cash flows include all adjustments (consisting
only of normal recurring items) necessary for their fair presentation in
conformity with generally accepted accounting principles. Preparing financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, and expenses. Examples
include provisions for returns and bad debts and the length of product life
cycles and buildings' lives. Actual results may differ from these estimates.
Interim results are not necessarily indicative of results for a full year. The
information included in this Form 10-Q should be read in conjunction with
Management's Discussion and Analysis and financial statements and notes thereto
included in the Microsoft Corporation 1996 Form 10-K.
STOCK SPLIT
Effective December 9, 1996, outstanding shares of common stock were split
two-for-one. All prior share and per share amounts have been restated to reflect
the stock split.
EARNINGS PER SHARE
Earnings per share is computed on the basis of the weighted average number of
common shares outstanding plus the effects of outstanding stock options using
the treasury stock method and preferred shares using the if-converted method.
STOCKHOLDERS' EQUITY
Microsoft repurchases common stock on the open market. This program provides
shares for issuance to employees under the Company's stock option and stock
purchase plans. During the first two quarters of fiscal 1997, the Company
repurchased 16.7 million shares for $1.10 billion.
To enhance its stock repurchase program, Microsoft sells equity put warrants to
independent third parties. These put warrants entitle the holders to sell shares
of Microsoft common stock to the Company on certain dates at specified prices.
On December 31, 1996, 28 million warrants were outstanding with strike prices
ranging between $60 and $67 per share. The warrants expire at various dates
between the fourth quarter of fiscal 1997 and the fourth quarter of fiscal 1998
and are exercisable only at maturity. These put warrant contracts permit a
net-share settlement method in addition to cash settlement or physical delivery
at the Company's option, thus Microsoft is no longer required to reflect a put
warrant liability on the accompanying balance sheet.
During December 1996, Microsoft issued 12.5 million shares of 2.75% convertible
exchangeable principal-protected preferred stock. Dividends are payable
quarterly in arrears. In December 1999, each preferred share is convertible into
common shares or an equivalent amount of cash determined by a formula that
provides a floor price of $79.875 and a cap of $102.24 per preferred share. Net
proceeds of $980 million are expected to be used for repurchase of common
shares.
MICROSOFT NETWORK PARTNERSHIP
During October 1996, Microsoft and a subsidiary of Tele-Communications, Inc.
(TCI) terminated a partnership under which TCI owned a 20% minority interest in
The Microsoft Network, LLC, owner of the business assets of MSN(TM), The
Microsoft Network, an online service. Due to the evolving nature of the online
industry and MSN's move to a Web-based offering, the original direction of the
partnership changed and both Microsoft and TCI agreed to terminate this
partnership focused exclusively on MSN. In return for approximately $125 million
of TCI securities, Microsoft became the sole owner of MSN and the minority
interest on the accompanying balance sheet was eliminated. There was no other
material financial impact of the dissolution.
CONTINGENCIES
In an ongoing investigation, the Antitrust Division of the U.S. Department of
Justice requested information from Microsoft in September 1996 concerning Web
browsers. Microsoft is also subject to various legal proceedings and claims that
arise in the ordinary course of business. Management currently believes that
resolving these matters will not have a material adverse impact on the Company's
financial position or its results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Microsoft develops, manufactures, licenses, sells, and supports a wide range of
software products, including operating systems for personal computers (PCs) and
servers; server applications for client/server environments; business and
consumer productivity applications; software development tools; and Internet and
intranet software and technologies. The Company has recently expanded its
interactive content efforts, including MSN, the Microsoft Network online
service, various Internet-based services, and entertainment and information
software programs. Microsoft also sells personal computer books and input
devices, and researches and develops advanced technologies for future software
products.
REVENUES
Revenues were $2.68 billion in the second quarter of fiscal 1997, an increase of
22% over the comparable quarter of fiscal 1996. On a year-to-date basis,
revenues were $4.98 billion, 18% greater than the comparable period of the prior
fiscal year. Revenue growth rates were higher in the first two quarters of the
prior year due to the introduction of the Microsoft(R) Windows(R) 95 operating
system and Microsoft Office for Windows 95.
Software license volume increases have been the principal factor in the
Company's revenue growth. The average selling price per license has decreased,
primarily because of general shifts in the sales mix from retail packaged
products to licensing programs, from new products to product upgrades, and from
stand-alone desktop applications to integrated product suites. Average revenue
per license from original equipment manufacturer (OEM) licenses and corporate
license programs, such as Microsoft Select, is lower than average revenue per
license from retail versions. Likewise, product upgrades have lower prices than
new products. Also, prices of integrated suites, such as Microsoft Office, are
less than the sum of the prices for the individual programs included in these
suites when such programs are licensed separately.
A portion of the Company's revenues will be earned later than billed. Unearned
revenues as of December 31, 1996 on the accompanying balance sheet were $1.01
billion. Approximately $665 million of this amount represented the unearned
portion of Windows desktop operating systems revenues attributable to future
support commitments, Internet browser updates, and other unspecified
enhancements that will be recognized ratably over the products' life cycles,
currently estimated to be two years. As discussed below, unearned revenues
associated with upgrade rights for Microsoft Office 97 were $200 million. The
balance of unearned revenues was primarily attributable to maintenance and other
subscription contracts.
PRODUCT GROUPS
Platforms product group revenues were $1.49 billion in the second quarter of
fiscal 1997, compared to $1.13 billion for the same period of 1996, an increase
of 32%. On a year-to-date basis, platforms product group revenues increased to
$2.68 billion from $2.17 billion. Platforms product group revenues are primarily
from licenses of PC operating systems, business systems with client/server
architectures, and software development tools.
As expected, revenues from retail upgrade versions of Windows 95 decreased
compared to the comparable quarters of the prior year, the period during which
Windows 95 was released. Total Windows 95 unit volume continued to build, as
units licensed through the OEM channel increased strongly.
English and certain European language versions of Windows NT(R) 4.0 were
released during the first quarter of fiscal 1997, while a Japanese version was
released during the second quarter. These product introductions fueled revenue
increases for both Windows NT Workstation and Windows NT Server during both
quarters.
Applications and content product group revenues were $1.19 billion in the second
quarter of fiscal 1997, increasing 12% from $1.07 billion in the second quarter
of fiscal 1996. For the first two quarters of fiscal 1997, applications and
content product revenues were $2.30 billion, compared to $2.05 billion in the
corresponding period of 1996. Applications and content product group revenues
include primarily licenses of desktop and consumer productivity applications,
interactive media programs, and PC input devices. Integrated suites generate
most desktop application revenues. The primary programs in Microsoft Office are
the Microsoft Word word processor, the Microsoft Excel spreadsheet, and the
Microsoft PowerPoint(R) presentation graphics program. Various versions of
Office, which are available for Windows 32-bit, Windows 16-bit, and Macintosh
operating systems, also include applications such as the Microsoft Access(R)
database management program, the Microsoft Schedule+ calendar and scheduling
program, and an email client license. The sales mix of 32-bit versions of
Microsoft Office continued to increase. Applications and Content revenues grew
at a rate lower than recent levels due to the gradual reduction of the
- --------------------------------------------------------------------------------
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amount of product in the channel in anticipation of the launch of the newest
version of the Company's primary desktop application product (Microsoft Office
97). Also, unearned revenues of $200 million attributed to upgrade rights
impacted the growth rate. Most versions of Microsoft Office for Windows 95
shipped during the second quarter carried a "technological guarantee" that
entitled customers to a free upgrade to the corresponding Microsoft Office 97
version of the product. Associated revenues will be recognized when the upgrade
delivery obligation is fulfilled.
SALES CHANNELS
Microsoft distributes its products primarily through OEM licenses, corporate
licenses, and retail packaged products. OEM channel revenues are license fees
from original equipment manufacturers. Microsoft has three major geographic
sales and marketing organizations: the U.S. and Canada, Europe, and elsewhere in
the world (Other International). Sales of corporate licenses and packaged
products in these channels are primarily to distributors and resellers.
OEM earned revenues were $866 million in the second quarter compared to the $672
million recorded in the comparable quarter of the prior year. On a year-to-date
basis, OEM revenues were $1.53 billion, compared to $1.22 billion in fiscal
1996. The primary source of OEM revenues is the licensing of desktop operating
systems. The percentage of new PCs with Windows 95 preinstalled increased to
more than 75% of reported shipments during the second quarter of fiscal 1997,
while MS-DOS and Windows 3.x continued to be preinstalled on many of the
remainder of PCs sold by OEMs. The above-mentioned ratable revenue recognition
policy was extended to Windows operating systems licensed through the OEM
channel in the third quarter of the prior fiscal year.
Revenues in the U.S. and Canada were $759 million in the second quarter of
fiscal 1997 compared to $632 million in the second quarter of 1996. Revenues in
the first half of fiscal 1997 were $1.57 billion, compared to $1.38 billion
recorded last year. Revenues in Europe were $631 million in the second quarter
of fiscal 1997 compared to $569 million in the prior year. European revenues
were $1.06 billion in the first half of 1997 compared to $995 million the prior
year. Growth rates slowed in the U.S. and Canadian and European channels due to
the strong sales of Windows 95 and Microsoft Office for Windows 95 the prior
year, reflecting typical retail upgrade sales patterns of new versions of PC
operating systems and desktop applications. Other International channel revenues
increased 32% to $424 million in the second quarter of fiscal 1997 from $322
million in the second quarter of fiscal 1996, reflecting strong sales in Japan.
On a year-to-date basis, Other International revenues were $817 million in
fiscal 1997 compared to $619 million the prior year.
Excluding the impact of the shipment of retail upgrade versions of Windows 95
and Microsoft Office for Windows 95 in the first half of fiscal 1996, the trend
has continued toward a higher percentage of corporate licensing versus packaged
products.
Microsoft's operating results are affected by foreign exchange rates. Had the
exchange rates in effect during the second quarter of the prior year been in
effect during the second quarter of 1997, translated revenues in Europe would
have been $15 million higher and translated Other International revenues would
have been $20 million higher. Since much of Microsoft's international
manufacturing costs and operating expenses are also incurred in local
currencies, the relative translation impact of exchange rates on net income is
less than on revenues. Also, a portion of planned translated international
finished goods revenues in fiscal 1997 is hedged with purchased options.
OPERATING EXPENSES, NONOPERATING ITEMS, AND INCOME TAXES
Cost of revenues as a percentage of revenues was 11.0% in the second quarter of
fiscal 1997 compared to 15.0% in the second quarter of 1996, and 11.0% in the
first half of fiscal 1997 versus 15.5% in the first half of 1996. The decrease
was primarily due to high shipments of retail upgrade versions of Windows 95 and
Microsoft Office for Windows 95 in the comparable periods of the prior year.
Cost of revenues also decreased because of general trends toward more corporate
licensing and more shipments of products on CD-ROM, which carry lower cost of
goods than floppy disks.
Research and development expenses increased 55% to $485 million (18.1% of
revenues) in the second quarter of fiscal 1997 from $313 million (14.3% of
revenues) in the corresponding quarter of 1996. The continued increase in
research and development expenses in fiscal 1997 resulted primarily from planned
hiring of software developers and higher levels of third-party development
costs.
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Sales and marketing expenses were $737 million in the second quarter of fiscal
1997 compared with $690 million in 1996. As a percentage of revenues, sales and
marketing expenses were 27.5% and 31.4% in the respective second quarters of
fiscal 1997 and 1996. Sales and marketing expenses as a percent of revenues in
fiscal 1997 decreased due to the high level of marketing and support associated
with the launch of Windows 95 in 1996.
General and administrative expenses were $81 million (3.0% of revenues) in the
second quarter of fiscal 1997 and $76 million (3.5% of revenues) in the second
quarter of 1996. Fiscal 1997 increases were due to growth in the systems and
number of people necessary to support overall increases in the scope of the
Company's operations.
Interest income increased as a result of a larger investment portfolio generated
by cash from operations.
Other expenses increased in both the first and second quarters of 1997 due to
recognition of the Company's share of operational expenses of joint ventures,
including DreamWorks Interactive and the MSNBC entities.
The effective income tax rate was 35% in all periods.
NET INCOME
Net income for the second quarter of fiscal 1997 was $741 million. Net income as
a percentage of revenues was 27.6% in the second quarter of fiscal 1997 compared
with 26.2% in the second quarter of 1996. The increase in net income as a
percentage of revenues in fiscal 1997 was primarily the result of substantial
reductions in relative cost of revenues and sales and marketing expenses,
partially offset by increases in research and development and funding of joint
ventures.
FINANCIAL CONDITION
Microsoft's cash and short-term investment portfolio totaled $9.16 billion at
December 31, 1996. The portfolio is diversified among security types,
industries, and individual issuers. Microsoft's investments are generally liquid
and investment grade. The portfolio is invested predominantly in U.S. dollar
denominated securities, but also includes foreign currency positions in
anticipation of continued international expansion. The portfolio is primarily
invested in short-term securities to minimize interest rate risk and facilitate
rapid deployment in the event of immediate cash needs.
Microsoft has no material long-term debt and has $70 million of standby
multicurrency lines of credit that support foreign currency hedging and
international cash management.
Stockholders' equity at December 31, 1996 was $9.64 billion.
Cash generated from operations has been sufficient historically to fund
Microsoft's investment in research and development activities and facilities
expansion. Research and development investments will continue in existing and
advanced areas of technology. Microsoft's cash will be used to acquire
technology and to fund ventures and other strategic opportunities. Additions to
property, plant, and equipment are expected to continue, including new
facilities and computer systems for research and development, sales and
marketing, product support, and administrative staff. Commitments for
constructing new buildings were $450 million on December 31, 1996.
Cash will also be used to repurchase common stock to provide shares for employee
stock option and purchase plans. Microsoft enhances its repurchase program by
selling put warrants. See notes to financial statements.
During December 1996, Microsoft issued 12.5 million 2.75% preferred shares. See
notes to financial statements.
During fiscal 1996, Microsoft and National Broadcasting Company (NBC)
established two joint ventures: a 24-hour cable news and information channel and
an interactive online news service. Microsoft agreed to pay $220 million over a
five-year period for its interest in the cable venture and to pay one-half of
operational funding of both joint ventures for a multiyear period.
Management believes existing cash and short-term investments together with
funds generated from operations will be sufficient to meet operating
requirements for the next twelve months. Microsoft's cash and short-term
investments are available for strategic investments, mergers and acquisitions,
other potential large-scale cash needs that may arise, and to fund an increased
stock buyback program over historical levels to reduce the dilutive impact of
the Company's employee stock option and purchase programs. Despite recent
increases in stock repurchases, the buyback program has not kept pace with
employee stock option grants or exercises. Beginning in fiscal 1990, Microsoft
has repurchased 134 million common shares for $4.2 billion while 336 million
shares were issued under the Company's employee stock option and purchase
plans. The market value of all outstanding stock options was $21.8 billion as
of December 31, 1996.
Microsoft has not paid cash dividends on its common stock. The preferred stock
pays $2.196 per annum per share.
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Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS
See notes to financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on November 12, 1996, the following
proposals were adopted by the margins indicated:
1. To elect a Board of Directors to hold office until the next annual meeting
of shareholders and until their successors are elected and qualified.
NUMBER OF SHARES
---------------------------
FOR WITHHELD
----------- ---------
William H. Gates 536,874,375 2,152,263
Paul G. Allen 536,871,320 2,155,318
Jill E. Barad 534,523,936 4,502,702
Richard A. Hackborn 536,917,381 2,109,257
David F. Marquardt 536,933,188 2,093,450
Robert D. O'Brien 536,719,379 2,307,259
William G. Reed, Jr. 536,971,762 2,054,876
Jon A. Shirley 536,964,036 2,062,602
2. To approve an amendment to the Company's 1991 Stock Option Plan to reserve
an additional 200,000,000 shares (restated to reflect the two-for-one stock
split) of common stock for issuance thereunder.
For 307,280,849
Against 129,627,668
Abstain 2,290,050
3. To approve the adoption of the 1997 Employee Stock Purchase Plan, including
the reservation of 200,000,000 shares (restated to reflect the two-for-one
stock split) of common stock thereunder.
For 422,180,091
Against 14,998,735
Abstain 2,019,762
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
11. Computation of Earnings Per Share is on page 10.
27. Financial Data Schedule
(B) REPORTS ON FORM 8-K
Microsoft filed no reports on Form 8-K during the quarter ended December
31, 1996.
ITEMS 2, 3, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Microsoft Corporation
Date: February 13, 1997 By:/s/ Michael W. Brown
---------------------------
Michael W. Brown,
Vice President, Finance;
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
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EXHIBIT INDEX
EXHIBITS
11. Computation of Earnings Per Share
27. Financial Data Schedule
1
EXHIBIT 11.
MICROSOFT CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(In millions, except earnings per share) (Unaudited)
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THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------------- ----------------
1995 1996 1995 1996
-----------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding 1,180 1,196 1,180 1,195
Common stock equivalents - stock options 96 107 98 104
Common stock equivalents - preferred stock 1
-----------------------------------------------------------------------------------------------------------
Average common and common stock equivalents outstanding (1) 1,276 1,304 1,278 1,299
===========================================================================================================
Net income $ 575 $ 741 $1,074 $1,355
===========================================================================================================
Earnings per share (1) (2) $ 0.45 $ 0.57 $ 0.84 $ 1.04
===========================================================================================================
(1) Share and per share amounts for the three and six months ended December
31, 1995 have been restated to reflect a two-for-one stock split in
December 1996.
(2) Fully diluted earnings per share have not been presented because the
effects are not material.
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10
5
1,000,000
6-MOS
JUN-30-1997
DEC-31-1996
$9,160
0
975
0
0
10,442
2,512
1,190
12,786
3,144
0
0
980
3,541
5,121
12,786
4,975
4,975
546
546
2,446
0
0
2,085
730
1,355
0
0
0
1,355
1.04
1.04
