<PAGE> 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 MARCH 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO ____
----------
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: (425) 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
April 30, 1997 was 1,198,327,269.
================================================================================
<PAGE> 2
MICROSOFT CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
<S> <C>
a) Income Statements
for the Three and Nine Months Ended March 31, 1996 and 1997.............. 1
b) Balance Sheets
as of June 30, 1996 and March 31, 1997................................... 2
c) Cash Flows Statements
for the Nine Months Ended March 31, 1996 and 1997........................ 3
d) Notes to Financial Statements............................................ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 9
Item 6. Exhibits and Reports on Form 8-K............................................. 9
SIGNATURE...................................................................................... 10
</TABLE>
<PAGE> 3
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
MICROSOFT CORPORATION
INCOME STATEMENTS
(In millions, except earnings per share)(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1996 1997 1996 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $2,205 $3,208 $6,416 $8,183
- -------------------------------------------------------------------------------------
Operating expenses:
Cost of revenues 295 297 947 843
Research and development 364 492 979 1,409
Sales and marketing 685 750 1,996 2,112
General and administrative 87 101 226 268
- -------------------------------------------------------------------------------------
Total operating expenses 1,431 1,640 4,148 4,632
- -------------------------------------------------------------------------------------
Operating income 774 1,568 2,268 3,551
Interest income 86 119 228 316
Other income (expense) 4 (84) 23 (179)
- -------------------------------------------------------------------------------------
Income before income taxes 864 1,603 2,519 3,688
Provision for income taxes 302 561 883 1,291
- -------------------------------------------------------------------------------------
Net income 562 1,042 1,636 2,397
Preferred stock dividends 7 8
- -------------------------------------------------------------------------------------
Net income available for common shareholders $ 562 $1,035 $1,636 $2,389
=====================================================================================
Earnings per share (1) $ 0.44 $ 0.79 $ 1.28 $ 1.83
=====================================================================================
Weighted average shares outstanding(1) 1,278 1,322 1,278 1,307
=====================================================================================
</TABLE>
(1) Share and per share amounts for the three and nine months ended March 31,
1996 have been restated to reflect a two-for-one stock split in December
1996.
See accompanying notes.
1
<PAGE> 4
MICROSOFT CORPORATION
BALANCE SHEETS
(In millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30 March 31
1996 1997(1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 6,940 $ 9,086
Accounts receivable 639 866
Other 260 272
- ----------------------------------------------------------------------------------------------------------------
Total current assets 7,839 10,224
Property, plant, and equipment 1,326 1,371
Equity investments 675 819
Other assets 253 199
- ----------------------------------------------------------------------------------------------------------------
Total assets $10,093 $12,613
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 808 $ 864
Accrued compensation 202 209
Income taxes payable 484 463
Unearned revenues 560 1,285
Other 371 658
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 2,425 3,479
- ----------------------------------------------------------------------------------------------------------------
Minority interest 125
- ----------------------------------------------------------------------------------------------------------------
Put warrants 635
- ----------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock -
shares authorized 100; outstanding 13 980
Common stock and paid-in capital -
shares authorized 4,000; outstanding 1,194 and 1,191 2,924 4,036
Retained earnings 3,984 4,118
- ----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 6,908 9,134
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $10,093 $12,613
================================================================================================================
</TABLE>
(1) Unaudited
See accompanying notes.
2
<PAGE> 5
MICROSOFT CORPORATION
<TABLE>
<CAPTION>
CASH FLOWS STATEMENTS
(In millions)(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
Nine Months Ended
March 31
1996 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net income $ 1,636 $ 2,397
Depreciation and amortization 336 414
Current liabilities 959 1,078
Accounts receivable (154) (252)
Other current assets 29 (18)
- --------------------------------------------------------------------------------------------------------------------
Net cash from operations 2,806 3,619
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS USED FOR FINANCING
Common stock issued 384 553
Common stock repurchased (800) (2,975)
Preferred stock issued 980
Preferred stock dividends (7)
Stock option income tax benefits 243 482
- --------------------------------------------------------------------------------------------------------------------
Net cash used for financing (173) (967)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS USED FOR INVESTMENTS
Additions to property, plant, and equipment (336) (326)
Equity investments and other (257) (155)
Short-term investments (1,045) (895)
- --------------------------------------------------------------------------------------------------------------------
Net cash used for investments (1,638) (1,376)
- --------------------------------------------------------------------------------------------------------------------
Net change in cash and equivalents 995 1,276
Effect of exchange rates on cash and equivalents (20) (25)
Cash and equivalents, beginning of period 1,962 2,601
- --------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of period 2,937 3,852
Short-term investments, end of period 3,833 5,234
- --------------------------------------------------------------------------------------------------------------------
Cash and short-term investments, end of period $ 6,770 $ 9,086
====================================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 6
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
In December 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 three quarters of fiscal 1997, the Company
repurchased 37 million shares for $3.10 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 March 31, 1997, 30 million warrants were outstanding with strike prices
ranging between $69 and $78 per share. The warrants expire at various dates
between the first quarter of fiscal 1998 and the first quarter of fiscal 1999
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 were used to repurchase 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.
4
<PAGE> 7
ACQUISITION AGREEMENT
In April 1997, Microsoft announced its agreement to acquire WebTV Networks, Inc.
(WebTV), an online service that enables consumers to experience the Internet
through their televisions via set-top terminals based on proprietary
technologies. Microsoft will pay $425 million in stock and cash for WebTV.
Microsoft expects an in process R&D write-off of $300 million will be required
in the quarter of acquisition. The agreement has been approved by the Boards of
Directors of Microsoft and WebTV and is subject to approval by the shareholders
of WebTV and to satisfaction of regulatory requirements.
CONTINGENCIES
In an ongoing investigation, the Antitrust Division of the U.S. Department of
Justice requested information from Microsoft concerning various issues.
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.
5
<PAGE> 8
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 $3.21 billion in the third quarter of fiscal 1997, an increase of
45% over the comparable quarter of fiscal 1996. Growth was enhanced due to the
introduction of Microsoft Office 97 during the March quarter. On a year-to-date
basis, revenues were $8.18 billion, 28% greater than the first three quarters of
the prior fiscal year. Revenue growth was particularly strong in the first two
quarters of the prior year due to the retail 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.
Microsoft is committed to integrating Internet technology into existing products
at no additional cost to its customers. Given this strategy, combined with
commitments such as Internet-based technical support, telephone support, and
unspecified enhancements, Microsoft recognizes a portion of Windows operating
systems revenue over the products' life cycles, currently estimated at two
years. Since Office 97 is also tightly integrated with the rapidly evolving
Internet, and subsequent delivery of new Internet technologies, enhancements,
and other support is likely to be more than minimal, this revenue recognition
policy was extended to Office 97 licenses in the March quarter. Associated
revenues will be recognized ratably over the estimated 18-month product life
cycle.
The portion of the Company's revenues that are earned later than billed is
reflected in unearned revenues on the accompanying balance sheet. Of the March
31, 1997 balance of $1.29 billion, approximately $765 million represented the
unearned portion of Windows desktop operating systems revenues and $150 million
represented the unearned portion of Office 97 revenues. As discussed below,
unearned revenues associated with upgrade rights for Microsoft Office 97 were
$190 million. The balance of unearned revenues was primarily attributable to
maintenance and other subscription contracts.
PRODUCT GROUPS
Platforms product group revenues were $1.68 billion in the third quarter of
fiscal 1997, compared to $970 million for the same period of 1996, an increase
of 73%. On a year-to-date basis, platforms product group revenues increased to
$4.35 billion from $3.14 billion. Platforms product group revenues are primarily
from licenses of PC operating systems, business systems with client/server
architectures, and software development tools.
Windows 95 unit volume continued to build, as units licensed through the OEM
channel increased strongly. Additionally, revenues from Windows NT Workstation
operating system grew, particularly through retail channels. Business systems,
which include servers and server applications, exhibited strong revenues, with
the greatest growth in Windows NT Server revenues.
Applications and content product group revenues were $1.53 billion in the March
quarter of fiscal 1997, increasing 24% from $1.24 billion in the March quarter
of fiscal 1996. For the first three quarters of fiscal 1997, applications and
content product revenues were $3.83 billion, compared to $3.28 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
Microsoft Word word processor, Microsoft Excel
6
<PAGE> 9
spreadsheet, and 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 Microsoft
Access(R) database management program, Microsoft Outlook(TM) desktop manager,
Microsoft Schedule+ calendar and scheduling program, and an email client
license.
During the third quarter, Microsoft Office 97 was released in most geographical
regions, propelling excellent results. Most versions of Microsoft Office for
Windows 95 shipped during the second and third quarters 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 $960 million in the third quarter compared to the $633
million recorded in the comparable quarter of the prior year. On a year-to-date
basis, OEM revenues were $2.49 billion, compared to $1.85 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 third quarter of fiscal 1997,
while MS-DOS and Windows 3.x or Windows NT Workstation were 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 $938 million in the third quarter of fiscal
1997 compared to $620 million in the third quarter of 1996. Revenues in the
first three quarters of fiscal 1997 were $2.51 billion, compared to $2.00
billion recorded last year. Revenues in Europe were $799 million in the second
quarter of fiscal 1997 compared to $555 million in the prior year. European
revenues were $1.86 billion in the first three quarters of 1997 compared to
$1.55 billion the prior year. Other International channel revenues increased to
$511 million in the third quarter of fiscal 1997 from $397 million in the third
quarter of fiscal 1996. On a year-to-date basis, Other International revenues
were $1.33 billion in fiscal 1997 compared to $1.02 billion the prior year.
Excluding the impact of the shipment of retail upgrade versions of 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 third quarter of the prior year been in
effect during the third quarter of 1997, translated revenues in Europe would
have been $36 million higher and translated Other International revenues would
have been $46 million higher. The relative translation impact of exchange rates
on net income is less than these amounts because a portion of local currency
denominated revenues is hedged with purchased options and much of Microsoft's
international manufacturing costs and operating expenses are also incurred in
local currencies.
OPERATING EXPENSES, NONOPERATING ITEMS, AND INCOME TAXES
Cost of revenues as a percentage of revenues was 9.3% in the third quarter of
fiscal 1997 compared to 13.4% in the third quarter of 1996, and 10.3% in the
first three quarters of fiscal 1997 versus 14.8% in the same period of 1996. The
decrease was due to high shipments of retail upgrade versions of Windows 95 in
the first half of the prior year and 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 35% to $492 million (15.3% of
revenues) in the March quarter of fiscal 1997 from $364 million (16.5% 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.
Sales and marketing expenses were $750 million in the third quarter of fiscal
1997 compared with $685 million in 1996. As a percentage of revenues, sales and
marketing expenses were 23.4% and 31.1% in the respective third quarters of
fiscal 1997 and 1996. Sales and marketing expense as a percentage of revenues
decreased due to lower relative sales and support expenses in fiscal 1997 offset
somewhat by the marketing of Office 97.
7
<PAGE> 10
General and administrative expenses were $101 million (3.1% of revenues) in the
third quarter of fiscal 1997 and $87 million (3.9% of revenues) in the third
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 fiscal 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 third quarter of fiscal 1997 was $1.04 billion, representing
32.5% of revenues compared with 25.5% in the third quarter of 1996. On a year to
date basis, net income was 29.3% of revenues in fiscal 1997 compared to 25.5%
the prior year. 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 the funding of
joint ventures.
FINANCIAL CONDITION
Microsoft's cash and short-term investment portfolio totaled $9.09 billion at
March 31, 1997. 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 to support foreign currency hedging and cash
management. Stockholders' equity at March 31, 1997 was $9.13 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 $380 million on March 31, 1997.
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. During December 1996, Microsoft issued 12.5 million 2.75%
preferred shares. Net proceeds of $980 million were used to repurchase common
shares.
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 154
million common shares for $6.2 billion while 350 million shares were issued
under the Company's employee stock option and purchase plans. The market value
of all outstanding stock options was $23.0 billion as of March 31, 1997.
Microsoft has not paid cash dividends on its common stock. The preferred stock
pays $2.196 per annum per share.
NEW ACCOUNTING PRONOUNCEMENT
Beginning in the second quarter of fiscal 1998, Microsoft will be required to
report earnings per outstanding common share in addition to diluted earnings per
share. Earnings per common share was $0.87 in the third quarter of fiscal 1997,
compared to $0.47 in the third quarter of fiscal 1996. See Exhibit 11.
8
<PAGE> 11
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS
See notes to financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
11. Computation of Earnings Per Share is on page 11.
27. Financial Data Schedule
(B) REPORTS ON FORM 8-K
Microsoft filed no reports on Form 8-K during the quarter ended March 31,
1997.
ITEMS 2, 3, 4, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
9
<PAGE> 12
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: May 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)
10
<PAGE> 13
EXHIBIT INDEX
Exhibits
- --------
11. Computation of Earnings Per Share
27. Financial Data Schedule
<PAGE> 1
EXHIBIT 11.
MICROSOFT CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(In millions, except earnings per share) (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Nine Months
Ended Ended
March 31 March 31
1996 1997 1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding (3) 1,186 1,194 1,180 1,196
- --------------------------------------------------------------------------------
Earnings per common share (3) $0.47 $0.87 $1.39 $2.00
================================================================================
Common stock equivalents:
Preferred stock (1) 13 4
Employee stock options (2) 92 115 98 107
- --------------------------------------------------------------------------------
Average common and common stock equivalents
outstanding (3) 1,278 1,322 1,278 1,307
================================================================================
Diluted earnings per share (3) $0.44 $0.79 $1.28 $1.83
================================================================================
</TABLE>
(1) Calculated under the "if-converted" method.
(2) Calculated under the "treasury stock" method.
(3) Share and per share amounts for the three and nine months ended March 31,
1996 have been restated to reflect a two-for-one stock split in December
1996.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share. The new rule will
require specific disclosure of both diluted earnings per share and earnings per
common share calculated without the dilutive impacts of outstanding stock
options or convertible securities such as preferred stock. There was no material
difference between reported earnings per share and diluted earnings per share
for any period presented.
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,086
<SECURITIES> 0
<RECEIVABLES> 866
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,224
<PP&E> 2,604
<DEPRECIATION> 1,233
<TOTAL-ASSETS> 12,613
<CURRENT-LIABILITIES> 3,479
<BONDS> 0
0
980
<COMMON> 4,036
<OTHER-SE> 4,118
<TOTAL-LIABILITY-AND-EQUITY> 12,613
<SALES> 8,183
<TOTAL-REVENUES> 8,183
<CGS> 843
<TOTAL-COSTS> 843
<OTHER-EXPENSES> 3,789
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,688
<INCOME-TAX> 1,291
<INCOME-CONTINUING> 2,397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,397
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.83
</TABLE>
