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MICROSOFT CORP Annual Report, Year Ended Jun 30, 1997

Filing Date
Filed September 29, 1997
Period End
June 30, 1997
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 29, 1997. Cited figures are marked; the original filing is the authoritative source.

Microsoft's fiscal 1997 10-K (year ended June 30, 1997) shows a company still growing rapidly and highly profitable.

Revenue rose 31% to $11.36 billiona, operating income reached $5.13 billion, and net income climbed 57% to $3.45 billion, or $2.63 per diluted share (restated for the December 1996 two-for-one split). Gross margins widened as cost of revenue fell to 9.6% of revenue, and the return on revenue reached 30.4%. Growth was driven by the Windows 95 cycle, Office 97, and a shift toward OEM and corporate licensing, though management cautioned that 1998 revenue growth may not match the pace of 1997, particularly in the second half, and that operating margins could decline as expenses rise.

The balance sheet is conservative. Cash and short-term investments totaled $8.97 billionb, the company carries no material long-term debt, and stockholders' equity rose to $10.78 billion. Cash from operations was $4.69 billion.

Capital allocation included $3.1 billionc in share repurchases, a $1.0 billion investment in Comcast ($500 million common and $500 million convertible preferred), a $980 million 2.75% convertible preferred issuance used to fund buybacks, and the August 1997 acquisition of WebTV for $425 million, which will produce a roughly $300 million in-process R&D charge in fiscal 1998. Microsoft does not pay cash dividends.

Key risks flagged in the filing include intense competition from larger rivals, the pace of technological change (especially Internet and Java-based thin-client strategies), software piracy outside the U.S., foreign exchange exposure (about a third of revenue is collected in foreign currencies), and an ongoing U.S. Department of Justice antitrust investigation, which management does not expect to have a material adverse effect. R&D spending reached $1.93 billiond, about 17% of revenue, and management expects it to increase in 1998.

02—Key points

Key Highlights

  1. Revenue grew 31% to $11.36 billion in fiscal 1997, up from $8.67 billion in fiscal 1996.
  2. Operating income rose to $5.13 billion, and net income reached $3.45 billion, or $2.63 per diluted share.
  3. Cost of revenue fell to 9.6% of revenue (from 13.7%), reflecting mix shift toward OEM, corporate licensing, and server products.
  4. Cash and short-term investments of $8.97 billion, with no material long-term debt, supporting strategic investments and buybacks.
  5. Repurchased $3.1 billion of common stock during fiscal 1997, while $1.0 billion went into Comcast and $425 million into WebTV.
  6. Revenue recognition is shifting: Windows operating systems and Office 97 are now partly recognized ratably, which defers some revenue.
  7. Management warned that 1998 revenue growth may not match 1997, operating expenses will rise, and operating margins may decline.

03—Questions

Frequently Asked Questions

  1. How strong was Microsoft's profitability in fiscal 1997?

    Very strong. Net income was $3.45 billion on $11.36 billion of revenue, a 30.4% return on revenue, up from 25.3% the prior year. Operating margin reached about 45%, helped by lower cost of revenue and disciplined sales and G&A spending.

  2. What is the company's balance sheet position?

    Strong. Cash and short-term investments were $8.97 billion, total assets were $14.39 billion, and stockholders' equity was $10.78 billion. The company reported no material long-term debt and held $70 million in standby credit lines for currency hedging and cash management.

  3. What did Microsoft do with its cash?

    It repurchased $3.1 billion of stock to offset dilution from employee option plans, invested $1.0 billion in Comcast, issued $980 million of convertible preferred to fund further buybacks, and acquired WebTV for $425 million in stock and cash. It also committed $300 million to new buildings and continued heavy R&D spending.

  4. What are the main risks to future growth?

    Management highlighted slower revenue growth after the Windows 95 cycle, rising operating expenses in 1998, a possible decline in PC unit growth, competition from larger firms and from thin-client and Internet-based models, software piracy, foreign exchange swings, and the ongoing Department of Justice antitrust investigation.

  5. Does Microsoft pay dividends?

    No. Microsoft has never paid cash dividends on its common stock. The only dividend obligation is the 2.75% preferred stock issued in December 1996, which costs about $15 million per year.

04—Continue

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