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MICROSOFT CORP Annual Report, Year Ended Jun 30, 1995

Filing Date
Filed September 25, 1995
Period End
June 30, 1995
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 25, 1995. Cited figures are marked; the original filing is the authoritative source.

Microsoft's fiscal 1995 10-K (year ended June 30, 1995) shows a company at the height of its PC software dominance.

Net revenues rose 28% to $5.94 billiona from $4.65 billion, operating income reached $2.04 billion, and net income climbed 27% to $1.45 billion, or $2.32 per share. Operating margin held near 34%, and return on net revenues stayed around 24.5%. Growth was driven mainly by higher software license volume, with OEM channel revenue up to $1.65 billion, U.S. and Canada revenue at $1.88 billion, and Other International revenue jumping 74% to $924 million.

The Applications and Content group ($3.58 billionb) outgrew the Platforms group ($2.36 billion), led by Microsoft Office. The balance sheet is conservative. Cash and short-term investments totaled $4.75 billion against no material long-term debt, and stockholders' equity reached $5.33 billion.

Operating cash flow was $1.99 billionc. Capital spending rose to $495 million, with about $150 million committed to new buildings. Management has not paid cash dividends and instead repurchased $649 million of stock during the year.

The company also sold put warrants with a maximum repurchase obligation of $405 milliond, which is now classified outside equity. The filing looks forward to Windows 95, released August 24, 1995, and the launch of The Microsoft Network. Management warns that operating expenses will rise in 1996 and that growth rates could slow in 1997 after an upgrade-driven surge.

Risks flagged include rapid technological change, competition from UNIX vendors, Novell, Lotus, and the Internet, pricing pressure, foreign exchange exposure, software piracy, and a DOJ review of MSN's inclusion in Windows 95. Management says that review is not expected to have a material adverse effect.

02—Key points

Key Highlights

  1. Net revenues grew 28% to $5.94 billion in FY1995, up from $4.65 billion in FY1994, and net income rose to $1.45 billion ($2.32 per share).
  2. Operating income of $2.04 billion represents roughly 34% operating margin, with cost of revenues down to 14.8% of revenues from 16.4%.
  3. Cash and short-term investments of $4.75 billion with no material long-term debt give Microsoft substantial financial flexibility.
  4. OEM channel revenues reached $1.65 billion, highlighting dependence on PC shipment volumes, while Other International revenues grew 74% to $924 million.
  5. Applications and Content product group revenue reached $3.58 billion, led by Microsoft Office, versus $2.36 billion for the Platforms group.
  6. Windows 95 launched August 24, 1995, and MSN is being introduced, with management warning of higher 2026 opex and possible slower growth in 1997.
  7. The company repurchased $649 million of common stock and sold put warrants with a maximum repurchase obligation of $405 million; no cash dividends have been paid.

03—Questions

Frequently Asked Questions

  1. How strong was Microsoft's financial performance in fiscal 1995?

    Very strong. Revenue rose 28% to $5.94 billion, operating income rose 18% to $2.04 billion, and net income rose 27% to $1.45 billion. Earnings per share increased from $1.88 to $2.32. Return on net revenues was 24.5%.

  2. What drove revenue growth?

    Growth came mainly from higher software license volume rather than price. Office suites, Windows operating system licenses to OEMs (40 million Windows units licensed in 1995 versus 30 million in 1994), and international expansion all contributed. Average revenue per license declined because of mix shifts toward OEM licenses, upgrades, and suites.

  3. Is Microsoft's balance sheet healthy?

    Yes. The company held $4.75 billion in cash and short-term investments, had no material long-term debt, and reported equity of $5.33 billion. Total assets were $7.21 billion, and $70 million of standby credit lines supported currency hedging. Operating cash flow of $1.99 billion funded R&D, capital spending, and buybacks.

  4. What risks and uncertainties should investors consider?

    Key risks include rapid technological change, intense competition from IBM, Novell, Lotus, Oracle, and online rivals such as CompuServe and America Online, pricing pressure, reliance on OEM PC volumes, foreign exchange exposure (about 37% of revenue was collected in foreign currencies), software piracy, and an ongoing DOJ inquiry into MSN's inclusion in Windows 95. Management expects R&D and sales spending to rise in 1996.

  5. Does Microsoft pay dividends, and how is it returning capital to shareholders?

    Microsoft does not pay cash dividends. It returns capital through open-market share repurchases to supply shares for employee stock option and purchase plans, which totaled $649 million in fiscal 1995. It also sold put warrants with a strike price of $69.75 on 8.0 million shares.

04—Continue

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