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MICROSOFT CORP Annual Report, Year Ended Jun 30, 1994

Filing Date
Filed September 27, 1994
Period End
June 30, 1994
Security
MSFT
In the record · 2016–202610-K1110-Q328-K106

MSFT filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 106 current reports (8-K) between 2016 and 2026.

  1. Deal closed8-K · Dec ’16Dec ’16
  2. Leadership change8-K · Sep ’18Sep ’18
  3. FY2021 annual report10-K · Jul ’21Jul ’21
  4. Leadership change8-K · Sep ’25Sep ’25

01—Abstract

Summary

Summary of the 10-K filed September 27, 1994. Cited figures are marked; the original filing is the authoritative source.

Microsoft's fiscal 1994 10-K (year ended June 30, 1994) shows a company at peak growth momentum.

Net revenues rose 24% to $4.65 billiona and net income grew 20% to $1.15 billion, with EPS of $1.88 (split-adjusted). This marked the 19th consecutive year of revenue and earnings growth, driven mainly by Windows and Microsoft Office. Operating income reached $1.73 billion, and the operating margin held at roughly 37%, supported by a gross margin of about 84% as cost of revenues fell to 16.4% of revenue.

Growth in applications revenue ($2.93 billionb, up 30%) and OEM licensing ($1.18 billion, up 61%) were the main drivers, while systems revenue grew to $1.52 billion. The balance sheet is very strong. Cash and short-term investments totaled $3.61 billion, about 67% of total assets of $5.36 billion, and the company reports no material long-term debt.

Stockholders' equity rose to $4.45 billionc, and operating cash flow was $1.59 billion. The company has not paid cash dividends, and it repurchases shares to fund employee stock option and purchase plans. Investors should weigh several risks.

The 1994 results include a net $90 milliond pretax litigation charge tied to the Stac Electronics patent case, and R&D spending rose to 13.1% of revenue. Management explicitly stated that recent revenue growth rates are not sustainable and warned that operating expenses may rise in 1995.

Pending legal matters include the Apple Computer and Wang Laboratories suits, and the company settled antitrust matters with the European Commission and the DOJ through consent decrees. Management also flagged a proposed stock-option expensing standard that could materially reduce future reported earnings.

02—Key points

Key Highlights

  1. Revenue of $4.65B in FY1994, up 24%; net income of $1.15B, up 20%; EPS of $1.88 (split-adjusted), marking the 19th consecutive year of growth.
  2. Applications revenue reached $2.93B (up ~30%), led by Microsoft Office, with Windows-based software accounting for about 85% of applications revenue.
  3. OEM revenues grew 61% to $1.18B, and about 80% of Windows units were sold through the OEM channel, reflecting the strength of preinstalled licensing.
  4. Gross margin remained strong at about 84% (cost of revenues 16.4% of revenue), and operating income was $1.73B, up 30%.
  5. Balance sheet is very strong: $3.61B in cash and short-term investments (67% of assets), no material long-term debt, and $4.45B in stockholders' equity.
  6. Net $90M pretax charge from the Stac Electronics patent litigation reduced 1994 EPS by $0.10.
  7. Management warns that recent revenue growth rates are not sustainable, and that a proposed stock-option expensing standard could materially reduce future reported earnings.

03—Questions

Frequently Asked Questions

  1. How fast is Microsoft growing and how profitable is it?

    Revenue grew 24% to $4.65 billion in fiscal 1994, and net income rose 20% to $1.15 billion. Net income was 24.7% of revenue, and return on average stockholders' equity was 29.8%. The company has now posted 19 consecutive years of revenue and earnings growth.

  2. What is driving revenue growth?

    Growth is led by the Windows operating system and Microsoft Office. Applications revenue rose to $2.93 billion, and OEM license revenue grew 61% to $1.18 billion as more new PCs shipped with preinstalled Windows and MS-DOS. Windows-based products now make up roughly 85% of applications revenue.

  3. Does Microsoft have financial risks I should be aware of?

    The company has little debt and substantial liquidity, but there are several risks. Management says recent growth rates are not sustainable and expects operating expenses to rise in 1995 as it invests in R&D and sales. Litigation with Apple and Wang is ongoing, a $90M Stac patent charge was taken in 1994, and proposed stock-option accounting rules could hurt future reported earnings.

  4. Does Microsoft pay dividends, and how is it returning capital?

    Microsoft has not paid cash dividends. Instead, it repurchases shares in the open market to supply stock for employee option and stock purchase plans, spending $348 million on repurchases in fiscal 1994. The company expects to continue this practice in 1995.

  5. Where is the stock traded and how has it performed?

    Microsoft trades over-the-counter on the Nasdaq National Market under the symbol MSFT. The stock reached a high of $54-5/8 in the fourth quarter of fiscal 1994, up from a fiscal 1994 low of $35-1/8, and there were 26,790 holders of record as of July 29, 1994.

04—Continue

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