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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended June 30, 2000
[_] 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
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MICROSOFT CORPORATION
Washington 91-1144442
(State of incorporation) (I.R.S. ID)
One Microsoft Way, Redmond, Washington 98052-6399
(425) 882-8080
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of common stock held by non-affiliates of the
registrant as of September 8, 2000 was $302,326,027,351.
The number of shares outstanding of the registrant's common stock as of
September 8, 2000 was 5,355,376,816.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2000 Annual Report to Shareholders are incorporated by
reference into Parts I, II, and IV. Portions of the definitive Proxy Statement
dated September 8, 2000 to be delivered to shareholders in connection with the
Annual Meeting of Shareholders to be held November 9, 2000 are incorporated by
reference into Part III.
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MICROSOFT CORPORATION
FORM 10-K
For The Fiscal Year Ended June 30, 2000
INDEX
Part I
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 13
Item 3. Legal Proceedings.............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............ 14
Executive Officers of the Registrant........................... 14
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters....................................................... 18
Item 6. Selected Financial Data........................................ 18
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition....................................... 18
Item 7a. Quantitative and Qualitative Disclosures about Market Risk..... 18
Item 8. Financial Statements and Supplementary Data.................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures......................................... 18
Part III
Item 10. Directors of the Registrant.................................... 19
Item 11. Executive Compensation......................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 19
Item 13. Certain Relationships and Related Transactions................. 19
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K...................................................... 20
Signatures..................................................... 22
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PART I
Item 1. Business
General
Microsoft Corporation (the "Company" or "Microsoft") was founded as a
partnership in 1975 and incorporated in 1981. Microsoft develops,
manufactures, licenses, and supports a wide range of software products for a
multitude of computing devices. Microsoft software includes scalable operating
systems for servers, personal computers (PCs), and intelligent devices; server
applications for client/server environments; knowledge worker productivity
applications; and software development tools. The Company's online efforts
include the MSN(TM) network of Internet products and services and alliances
with companies involved with broadband access and various forms of digital
interactivity. Microsoft also licenses consumer software programs; sells
hardware devices; provides consulting services; trains and certifies system
integrators; and researches and develops advanced technologies for future
software products.
Microsoft's business strategy emphasizes the development of a broad line of
software products for information technology (IT) professionals, knowledge
workers, developers, and consumers, marketed through multiple channels of
distribution. The Company is divided into three main areas: the Business
Divisions, the Sales, Marketing, and Support Group, and the Operations Group.
The Business Divisions work in close partnership in order to create powerful
software services and solutions built around the Internet, Windows, and new
devices. Each division is responsible for the product planning, development,
strategy, and in some cases, marketing strategies for their respective
customer segments. The product segments, based on these business divisions,
are the Windows(R) Platforms segment, the Business Productivity Applications
and Developer segment, and the Consumer and Other segment.
The Windows Platforms segment contains the Windows Division and the Windows
Digital Media Division. The Windows Division develops PC and server platforms
required to run applications and services and to deliver the connectivity,
management services and infrastructure for all types of users. The Windows
Division builds platforms for enterprise, dotcoms, small businesses, and
consumers. The Windows Digital Media Division develops digital media
technology and services for Windows platforms available across all types of
devices, networks, and services.
The Productivity Applications and Developer segment has two primary
divisions, the Business Productivity Group and the Developer Group. The
Business Productivity Group creates desktop and server software applications
and solutions for the knowledge workers and small businesses. The Developer
Group builds architecture and development of our tools and related platform
technologies for software developers.
The Consumer and Other segment includes the Consumer Group. The Consumer
Group provides Internet services and creates and markets productivity
programs, learning and entertainment products, and hardware peripherals for
consumers. For financial reporting, revenue from Microsoft Press, consulting,
and certification of system integrators is included in this segment.
See notes to financial statements for financial information regarding
segment reporting.
Microsoft has a research lab dedicated to creating new technology and
converting problems into tangible solutions that Microsoft developers can
incorporate into products to meet customers' needs.
The Sales, Marketing, and Support Group is responsible for building long-
term business relationships with original equipment manufacturers (OEMs),
enterprises, small- and medium-sized businesses, application developers,
educational institutions, and consumers. Enterprises are offered tailored
license programs, enterprise-wide support, consulting services, and other
specialized services. The group contains the Marketing Division, which is
responsible for domestic execution of integrated marketing campaigns and
similar worldwide initiatives;
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and developing expertise in public relations, advertising, customer loyalty,
research, and events. The group also manages the channels that serve customers
by working with OEMs, distributors, and resellers. In addition to the OEM
channel, Microsoft has three major geographic sales organizations: the South
Pacific and Americas; Europe, Middle East, and Africa; and Asia. The Sales,
Marketing, and Support group supports the Company's products with technical
support for end users, developers, and IT departments in organizations.
The Operations Group is responsible for managing business operations and
overall business planning. This includes the process of manufacturing and
delivering finished goods and licenses; corporate functions such as finance,
administration, human resources, and legal.
Products
Windows Platforms
The Windows Platforms segment is responsible for the development of PC and
server platforms, including the Microsoft Windows and Windows 2000 operating
systems. The segment is also responsible for developing the Microsoft Internet
Explorer browsing software and Microsoft Windows Media(TM) Technologies. PC
operating systems perform a variety of functions, such as allocating computer
memory, scheduling applications software execution, managing information and
communication flow among the various PC components, and enabling end users to
access files and information from a variety of sources. The Windows NT
operating system for servers is an enterprise-wide platform for building and
deploying distributed applications for networked PCs. The Windows Platforms
segment also provides products for developing, running, and managing Internet
and intranet applications and content.
Windows Millennium Edition. The latest version of the Windows operating
system, Windows Millennium Edition (Me) operating system is designed
specifically for home users to manage digital photos and music, work with
video, create a home network, and communicate with other consumers. Windows Me
was released in September 2000.
Windows 98. The successor to Windows 95, Windows 98 is a personal computer
operating system that provides a Web-oriented user interface, better system
performance along with easier system diagnostics and maintenance. Windows 98
supports graphics, sound, and multimedia technologies and provides the ability
to easily add and remove peripheral devices and support for Universal Serial
Bus (USB). Windows 98 was released in June 1998.
Windows 2000 Professional. The successor to Windows NT Workstation, Windows
2000 Professional operating system combined features to create a mainstream
operating system for desktop and notebook computing in all organizations.
Windows 2000 Professional contains the enhanced business features of Windows
98 such as Plug and Play, easy-to-use user interface, and power management and
integrated the strengths of Windows NT Workstation including standards-based
security, manageability, and reliability. Windows 2000 Professional was
released in February 2000.
Windows NT Workstation. A fully integrated, multitasking 32-bit PC operating
system, Windows NT Workstation provides security, robustness, and portability.
Windows NT Workstation is designed for mission-critical computing and provides
the same features and applications programming interfaces (APIs) for Intel and
Alpha AXP microprocessors. Microsoft Windows NT Workstation combines the
Windows 98 operating system interface and usability features with the
reliability and security of Windows NT for the business environment.
Windows 2000 Server, Advanced Server, and Datacenter Server. Windows 2000
Server family builds on the Windows NT technology, integrating standards-based
directory, Web, application, communications, file and print services with high
reliability, efficient management, and support for networking hardware to
provide the foundation for integrating with the Internet. Windows 2000 Server
is a multipurpose network operating system for businesses of all sizes.
Windows 2000 Advanced Server operating system is ideal for e-commerce and
line-of-business applications and provides enhanced performance and
scalability through SMP and extended memory
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support. Windows Datacenter Server operating system is built for large-scale
line-of-business and enterprise dotcom backend usage and supports server
consolidation and enhanced scalability. Windows 2000 Server and Advanced
Server were released in February 2000 and Windows Datacenter Server was
released in September 2000.
Windows NT Server. Windows NT Server is an operating system foundation for
both server applications and file and print sharing, with network management
features, administration tools, security, and high availability. Windows NT
Server provides a scalable platform for business critical applications and
databases, connectivity, system management, and electronic mail (e-mail)
servers. The operating system integrates Web services such as Microsoft
Internet Information Server, a service used to manage intranet and Internet
functionality, and Microsoft FrontPage(R) Web site creation and management
tool. Windows NT Server, Terminal Server Edition, an extension to the Windows
NT Server, offers the application support of the Windows operating system
platform with the centrally managed environment of the mainframe with
terminal. Windows NT Server Enterprise Edition provides the means for building
and deploying large-scale distributed applications for large and mission-
critical servers featuring comprehensive clustering for scalability and
availability.
Other Servers. Microsoft Proxy Server creates a single, secure gateway to
the Internet; Microsoft SNA Server provides connectivity to host data and
applications; and Microsoft Systems Management Server helps centrally manages
the distributed environment with integrated features, including hardware
inventory, software inventory and metering, software distribution and
installation, and remote troubleshooting tools.
Windows Media Technologies. Microsoft Windows Media Technologies provide the
ability to create, deliver, and play streaming media files for applications
ranging from news and entertainment to e-commerce and corporate training
available across all types of devices, networks, and services. Windows Media
Technologies components include the Windows Media Tools, Windows Media
Services streaming server, and Windows Media Player.
Productivity Applications and Developer
The Productivity Applications and Developer segment develops desktop
applications, server applications, developer tools, Web authoring tools, and
solutions to businesses by providing software and services to conduct commerce
on the Internet.
Business Productivity
The Business Productivity Division delivers integrated business productivity
solutions for the knowledge worker, including the Office family of products,
other desktop applications, server applications, and the Windows CE operating
system for productivity appliances.
Microsoft Office. Microsoft Office is a suite of software programs featuring
seamless integration of the most commonly used desktop applications. Microsoft
Office is based upon a document-centric concept, with common commands and
extensive use of cross-application capabilities. Microsoft Office is available
in several versions, with certain combinations of products, and available for
the Windows and Macintosh operating systems. Microsoft Office 2000 integrates
core productivity tools with the Web to simplify publishing Office documents
to an intranet or Internet site, simplifies information system support with a
self-repairing installation, and has enhanced usability with customizable
menus based on IntelliSense(R) technology rules. Products offered in the
various versions include the word processor Microsoft Word, Microsoft Excel
spreadsheet, Microsoft Outlook(TM) messaging and collaboration client,
Microsoft PowerPoint(R) presentation graphics program, Microsoft Access
database management application, and others. Microsoft Word is a word-
processing program designed to easily create professional-looking documents
for the Web, e-mail, and print. Microsoft Excel creates data-rich spreadsheets
for universal viewing on the Internet and for collaboration, allows users to
analyze data with charts, and incorporates Microsoft PivotTable(R) views and
graphs. Microsoft Outlook messaging and collaboration client provides a single
location for organizing and managing day-to-day information, including e-mail,
calendars,
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business contacts, and task lists. Microsoft PowerPoint presentation graphics
program is a complete set of tools for creating professional presentations.
Microsoft Access database management application allows for easy access and
retrieval of information and includes pre-packaged solutions to create
databases quickly. Microsoft FrontPage is a Web site creation and management
tool for Web sites on the Internet or intranets. Microsoft PhotoDraw(TM)
business graphics software is a program for creating custom business graphics
by editing illustrations and photos.
Other Desktop Application Products. The Company also offers other stand-
alone desktop application products. Microsoft Project is a critical path
project scheduling and resource allocation program. Microsoft Visio(R) enables
you to communicate effectively with easy-to-assemble drawings and diagrams;
create organizational charts and flowcharts; draw technical schematics and
annotate CAD drawings; build Web site maps; and manually or automatically work
on network, software, and database design. Microsoft Publisher is an easy-to-
use, entry-level desktop publishing program. Most of the applications included
in the various productivity suites are also licensed separately.
Server Applications. The Microsoft BackOffice(R) family of server
applications is an integrated suite of software products based on Windows NT
Server that includes file and print services, applications, database,
messaging, groupware, desktop management, Internet access, transaction
processing, and host connectivity. The BackOffice suite enables organizations
to share information, collaborate, and manage and deploy business-critical
applications and includes BackOffice Server, Exchange Server, Proxy Server,
Site Server, SQL Server(TM) and others. Microsoft BackOffice Small Business
Server is designed for smaller companies of 25 users or less as an integrated
solution for sharing files, databases, printers, electronic mail, fax
services, applications, and other resources. Microsoft Site Server allows a
comprehensive management of sophisticated Web sites and their content.
Microsoft Site Server Commerce helps businesses engage customers and partners
with creating cost-effective commerce sites and applications, targeted online
advertising and marketing, and personalized promotion.
Microsoft Exchange Server. The Company's messaging and collaboration server
is Microsoft Exchange Server, which provides e-mail, group scheduling, task
management, and document routing capabilities. Exchange Server offers a
scalable, reliable, and secure environment for multiple clients, and Internet
protocols as part of the core server architecture. It also includes tools to
create collaboration applications.
Windows CE. The Company delivers software and platform technologies for a
broad range of productivity appliances. Microsoft develops and markets Windows
CE, a scaleable Windows platform for communications, entertainment, and mobile
computing devices. The Windows CE operating system is built around an API that
is consistent with other 32-bit Windows-based operating systems. Windows CE
allows productivity appliances to communicate with each other, share
information with Windows-based PCs, and connect to the Internet. Microsoft
teams up with hardware companies that build Windows CE-based devices.
bCentral. Microsoft's small businesses portal, bCentral, allows companies to
leverage the Internet to drive their business forward. Microsoft bCentral Site
Manager is a web site management and hosting service which empowers small
businesses to easily create and manage their own web sites, while allowing for
higher-end editing in Microsoft FrontPage. Microsoft bCentral LinkExchange,
which the Company acquired in November 1998, provides services to small
businesses and Web site owners to increase their online traffic and sales with
free advertising banner ads on their site in exchange for placing ads on other
network sites.
Developer
The Developer Group provides software development tools and distributed
application platforms to developers of Windows-based applications and Internet
applications. These products and services empower independent software
developers, corporate developers, solutions developers, and Webmasters to
create a broad spectrum of applications. Microsoft Windows Distributed
interNet Applications (DNA) Architecture is the application development model
for the Windows platform. Windows DNA specifies how to develop robust,
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scalable, distributed applications using the Windows platform; extend existing
data and external applications to support the Internet; and support a wide
range of client devices. Windows DNA provides for the integration of Web and
client/server application development models through the Component Object
Model (COM). COM underlies a large majority of the code developed for Windows
and Windows NT operating systems. COM+, an extension of COM, builds on COM's
integrated services and features, making it easier for developers to create
and use software components in any language, using any tool.
Developer Tools. Software development tools and computer languages allow
software developers to write programs in a particular computer language and
translate programs into a binary machine-readable set of commands that
activate and instruct PC hardware. The Company develops and markets a number
of software development environments and language compilers. Microsoft Visual
C++(R) development system is the Company's development system for Windows-
based application development. The Microsoft Visual Basic(R) development
system provides easy access to a wide variety of data sources by integrating
the Microsoft Access database engine and the ability to take advantage of
investments in commercial applications. The Microsoft Visual InterDev(TM) Web
development system includes integrated, team-based development tools for
building Web-based applications based on HTML, Script, and components written
in any language. Microsoft Visual J++(TM) development system for Java contains
a high productivity Integrated Development Environment and a collection of
integrated components to create, test, tune, and deploy Java code on multiple
platforms. Microsoft Visual Studio(R) development system for Windows-based
development is a suite of developer tools enabling developers to build
components and applications using Visual Basic, Visual C++, Microsoft Visual
FoxPro(R) database development system, Visual InterDev, and Visual J++.
Developers can subscribe to the Microsoft Developer Network (MSDN(TM))
information service and receive periodic updates via CD-ROMs, magazines, and
several on-line information services.
Microsoft SQL Server. Microsoft SQL Server(TM) is a scalable, high-
performance database management system designed specifically for distributed
client/server computing. SQL Server has built-in data replication, management
tools, Internet integration, and online analytical processing (OLAP) to aid in
the analysis of information for reporting and data modeling. Its open system
architecture provides a Windows NT-based platform for delivering cost-
effective information solutions.
Consumer
The Consumer Group supplies services and content to consumers over the
Internet including MSN Internet Access; WebTV(R) Internet Service; MSN Portal
and vertical properties; and develops software and hardware products that are
designed to meet the needs of consumers in the home environment. Most software
and hardware products are licensed and sold to and through retail channels to
consumers. Major product categories include learning, productivity,
entertainment, and hardware peripherals.
The Microsoft Network. MSN Internet Access is a Web-based online service.
MSN provides easy and inexpensive access for users to a wide range of
graphically rich online content. MSN Internet Access provides dial-up Internet
access, free Web-based e-mail through MSN Hotmail, and Microsoft MSN Messenger
Service. MSN Hotmail, one of the largest e-mail services with 40 million
members, provides members with an e-mail account they can access from any PC
with Internet access and has localized versions in French, German, and
Japanese. MSN Messenger Service is a free Internet messaging service that
enables users to see when other users are online to exchange instant messages.
WebTV. WebTV Networks is an online service that enables consumers to
experience the Internet through their televisions via set-top terminals based
on WebTV(TM) technologies. WebTV operates the WebTV Network Service and
develops the WebTV Internet Terminal and WebTV Plus Receiver, which are
available through the Company's licensees. Future versions of the set-top
terminals will use the Windows CE operating system.
MSN Portal. The MSN Portal business provides services on the Internet,
encompassing the home page as well as the vertical services. The vertical
services provide an online decision support infrastructure for end users
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in many fields such as automobiles, travel, finance, and home purchasing.
Microsoft CarPoint(TM) online automotive service provides objective
information for new car purchases, including test-drive reviews, dealer
invoices, surround videos, and interactive classified advertisements for used
car purchasing. Microsoft HomeAdvisor(TM) online real estate service is a
complete guide to the home-buying process and provides comprehensive tools for
finding homes and loans on the Internet. Expedia, Inc., a majority owned
subsidiary of Microsoft, is a provider of branded online travel services for
leisure and small business travelers operating its own website with localized
versions in the United Kingdom, Germany, and Canada and certain other websites
in the United States and Europe. Expedia offers one-stop travel shopping and
reservation services, providing reliable, real-time access to schedule,
pricing and availability information. Expedia acquired Travelscape.com, Inc.
and VacationSpot.com, Inc. in March 2000. MSN MoneyCentral(TM) personal
finance online service is a free interactive personal finance resource to
track securities by providing company and mutual fund research, an investment
finder, daily editorial and market summaries, e-mail notifications and alerts,
and access to online trading through leading financial services firms. MSNBC
is an Internet news service that complements the MSNBC Cable Network,
providing in-depth reporting and information on a wide range of news topics,
from local to national to international news. Microsoft Passport is a platform
technology that makes it safer and easier for consumers to access information
and buy products and services online. Microsoft Passport allows consumers to
create a single sign-in, registration, and electronic wallet that can be
shared between all of the sites that support Microsoft Passport. TransPoint is
an end-to-end system for Internet bill delivery and payment. TransPoint's
service, using existing payment systems, allows consumers to access and pay
their bills through the branded home banking services of participating
financial institutions and other consumer service providers.
Learning. Learning titles include Microsoft Encarta(R) multimedia
encyclopedia and Microsoft Bookshelf CD-ROM reference library. The Encarta
family of products includes a multimedia encyclopedia database with
interactive information, an interactive world atlas with three-dimensional
maps, a world English dictionary, and an online version with monthly updates.
Microsoft Bookshelf is a multimedia reference library that integrates a
dictionary, world atlas, world almanac, thesaurus, concise encyclopedia, and
two books of quotations. Titles for children include My Personal Tutor, a
comprehensive, grade-based learning suite with TutorAssist(TM) learning
technology that identifies a child's specific learning needs and offers
instruction, and a series of products based on the popular children's book and
television series, Scholastic's The Magic School Bus(TM).
Productivity and Finance. Microsoft's productivity offerings include
Microsoft Works, an integrated software program that contains basic word-
processing, spreadsheet, and database capabilities that allows the easy
exchange of information from one tool to another. Microsoft Money is a
financial organization product that allows users to computerize their finances
and provides online home-banking services with numerous different banks in the
United States. The Works Suite provides a comprehensive collection of
software, including Microsoft Works, Microsoft Word, Microsoft Money,
Microsoft Encarta encyclopedia, Microsoft Graphics Studio Greetings, and
Microsoft Expedia Streets.
Entertainment. The Company offers a line of entertainment products from
classical software games to online games, simulations, sport products, and
strategy games. Microsoft Flight Simulator is a popular aircraft flight
simulation product. Other games include Combat Flight Simulator, Age of
Empires(R), Monster Truck Madness(R) racing simulation, Microsoft Baseball,
Microsoft Links, and other sports and action titles. The Microsoft Internet
Gaming Zone is a gaming community on the Internet allowing multiplayer gaming
competitions of Microsoft's popular CD-ROM games and classic card, board, and
puzzle games.
Hardware Peripherals. The Company develops and markets several PC input
devices including the Microsoft Mouse, a hand-held pointing device that
facilitates using the PC. The Microsoft IntelliMouse(R) pointing device with
an electronic eye that tracks movements over surfaces, and works for left- and
right-handed users. The Company also markets several types of keyboards
including the Microsoft Natural(R) Keyboard, an ergonomically designed
keyboard. Microsoft sells various Microsoft SideWinder(R) game controllers and
force feedback joysticks with realistic performance technology to use with PC
games.
Joint Ventures. The Company has entered into joint venture arrangements to
take advantage of creative talent and content from other organizations.
Microsoft owns 50 percent of MSNBC Cable L.L.C., a 24-hour cable
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news and information channel; and 50 percent of MSNBC Interactive News L.L.C.,
an interactive online news service. National Broadcasting Company (NBC) owns
the remaining 50 percent of these two joint ventures. Microsoft is an investor
in Transpoint L.L.C., a joint venture between Microsoft, First Data
Corporation, and Citibank. Microsoft owns a 49 percent of Avanade, a joint
venture with Andersen Consulting which offers solutions and services based on
Windows 2000.
Microsoft Press
Microsoft Press offers comprehensive learning and training resources to help
new users, power users, and professionals get the most from Microsoft
technology through books, CDs, self-paced training kits, and videos that are
created to accommodate different learning styles and preferences. Microsoft
Press(R) books are authored by professional and technical writers, both by
Microsoft employees and independent authors.
Microsoft Press contracts with an independent commercial printer for the
printing of its books. Publisher's Resources, Inc. acts as the Company's main
fulfillment house in the United States, maintaining the majority of the
inventory of Microsoft Press books. Books are marketed by independent sales
representatives and by Microsoft Press sales personnel. Internationally,
Microsoft Press has numerous agreements with publishers for the worldwide
distribution of its books. Microsoft Press has granted a publisher in England
the right to distribute English language versions of its books in all
countries except the United States, Canada, Latin America, and certain Asian
countries. In most cases, Microsoft Press provides each publisher with a
book's manuscript, and the publisher arranges for its translation and the
printing, marketing, and distribution of the translated version.
Customer Groups
The enterprise and partner sales group (EPG) has responsibility for
providing strategic leadership and creating programs for enterprise customers
and partners, assisting the field organization. The organization is
responsible for coordinating the enterprise strategy by industry, market,
partner and customer segment. EPG focuses on enterprise solutions including
large and medium organizations enterprise strategy, industry solutions,
integrated small organization strategy, anti-piracy, sales processes and
readiness; sales and support systems; partner strategy and programs including
global partner management; enterprise services; executive and technical sales
including corporate account technical marketing, industry evangelism and
executive sales events; and global account management. The group also creates
an integrated end-to-end service continuum for enterprise customers.
The industry solutions group includes full-service practices for financial
services, telecommunications, federal and state and local government, and the
educational market .
The network solutions customer group is responsible for introducing the
Company's products and technologies to public infrastructure owners and
Internet Content Providers. The customer group also focuses on embedded and
dedicated systems. Infrastructure owners include network operators (telephone
companies, cable companies, Internet service providers, etc.) who build, own,
and operate the public networks.
The consumer customer group has responsibility for activities that target
end users that make individual buying decisions for home PCs. Most sales and
marketing activities aimed at end-user customers are performed by this group,
including developing and administering reseller relationships; reseller sales
terms and conditions; channel marketing and promotions; end-user marketing
programs; and seminars, events, and sales training for resellers. The customer
group's sub-segments include direct marketing resellers and retailers.
Product Development
The software industry is characterized by extremely rapid technological
change, which requires constant attention to computing technology trends, and
shifting consumer demand, and rapid product innovation. The pace of change is
accelerating, as the computing needs of our customers move beyond the PC
toward intelligent devices and appliances.
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Most of the Company's software products are developed internally. The
Company also purchases technology, licenses intellectual property rights, and
oversees third-party development and localization of certain products.
Internal development enables Microsoft to maintain closer technical control
over the products and gives the Company the freedom to designate which
modifications and enhancements are most important and when they should be
implemented. The Company has created a substantial body of proprietary
development tools and has evolved development methodologies for creating and
enhancing its products. These tools and methodologies are also designed to
simplify a product's portability among different operating systems,
microprocessors, or computing devices. Product documentation is generally
created internally.
The Company believes that a crucial factor in the success of a new product
is getting it to market quickly to respond to new user needs or advances in
intelligent devices, PCs, servers, and the Internet, without compromising
product quality. The Company strives to become informed at the earliest
possible time about changing usage patterns and hardware advances that may
affect software design. Before releasing new software platforms, Microsoft
provides to software vendors a range of development, training, testing
resources, and guidelines for developing applications to software vendors.
To best serve the needs of users around the world, Microsoft "localizes"
many of its products to reflect local languages and conventions and to improve
the quality and usability of the product in international markets. Localizing
a product might require modifying the user interface, altering dialog boxes,
and translating text. In Japanese versions, for example, all user messages and
documentation are in Japanese with monetary references in the Japanese yen.
Various Microsoft products have been localized into more than 30 languages.
During fiscal years 1998, 1999, and 2000, the Company spent $2.60 billion,
$2.97 billion, and $3.78 billion, respectively, on product research and
development activities. Those amounts represented 17.0%, 15.0%, and 16.4%,
respectively, of revenue in each of those years, excluding funding of joint
venture activity. The Company is committed to continue high expenditures for
research and product development.
In fiscal 2000, Microsoft announced its most significant software research
and development initiative, Microsoft .NET. The fundamental strategy behind
Microsoft .NET is to focus on the shift from individual Web sites or devices
connected to the Internet, to constellations of computers, devices, and
services that work together to deliver broader, richer solutions. Microsoft's
.NET strategy includes the delivery of software as a service, built on the XML
standard; a new user experience that is accessible across and optimized for a
wide range of devices; and the creation of new opportunities for developers to
build Internet services and business more easily. Microsoft .NET builds on
Microsoft's core businesses, including Windows desktop and server operating
systems, enterprise server applications, Microsoft Office, and MSN. Microsoft
will offer a range of .NET products and services including Windows.NET--the
next generation Windows platform designed with customized applications and
services to allow user to control their digital information; MSN.NET--an
integrated consumer experience built on the .NET platform to deliver a more
integrated and personalized experience; subscription services--a set of
consumer-oriented services on the .NET platform that will build on existing
Microsoft entertainment, gaming, education, and productivity products;
Office.NET-- advanced communications and productivity tools; bCentral.NET--
subscription-based services and tools for small and growing businesses
including hosted messaging, commerce services, and customer relationship
management services; and Visual Studio.NET--XML-based programming model and
tools, fully supported by MSDN and Windows DNA 2000 servers.
Manufacturing
Microsoft contracts out most of its manufacturing activity to third parties.
Outside manufacturers produce various retail software packaged products and
hardware peripherals. There are other custom manufacturers Microsoft could use
in the event outsourced manufacturing becomes unavailable from current
vendors.
The Company's remaining manufacturing facilities are located in Puerto Rico
and Ireland. The Irish facility and the Puerto Rico facilities manufacture CD-
ROMs. Microsoft outsources its manufacturing of packaged
8
products. Quality control tests are performed on purchased parts, CD-ROMs, and
other products. The chief materials and components used in Microsoft products
include CD-ROMs, books, and multicolor printed materials. The Company is often
able to acquire component parts and materials on a volume discount basis. The
Company has multiple sources for raw materials, supplies, and components.
The Company's sales mix has shifted to OEM and organizational licenses from
packaged products. Also, online distribution of software is increasing.
Operations
Microsoft manages all product fulfillment, licensing, and logistics
services. The Company has regional operations centers in Ireland, Singapore,
and the Greater Seattle area. The regional centers support all operations
activities, including information processing, vendor management, logistics,
and related supporting functions by geographical regions. The regional center
in Dublin, Ireland supports the European, African, and Middle East regions,
the center in Singapore supports the Asia Pacific region, and the center in
the Greater Seattle area supports North and South America. The Company
established Microsoft Licensing Incorporated (MSLI) in Reno, Nevada, a wholly
owned subsidiary, which manages the Company's OEM and certain organizational
licensing operations.
Marketing and Distribution
The Company's sales and marketing group seeks to build long-term
relationships with customers of Microsoft products. The OEM sales group
includes the sales force that works with original equipment manufacturers that
preinstall Microsoft software on their PCs. In addition to the OEM channel,
Microsoft has three major geographic sales and marketing organizations: the
South Pacific and Americas; Europe, Middle East, and Africa; and Asia.
Finished Goods Channels
Distributors and Resellers. The Company licenses and sells its products in
the finished goods channels primarily to and through independent non-exclusive
distributors and resellers. Distributors include Inacom, Ingram Micro,
SoftBank, Tech Data, and Merisel. Resellers include Software Spectrum,
Corporate Software & Technology, CompUSA, Software House International,
Softmart, ASAP Software Express, and Best Buy. Microsoft has a network of
field sales representatives and field support personnel who solicit orders
from distributors and resellers and provide product training and sales
support.
Enterprise Accounts. The Microsoft Select program offers flexible software
acquisition, licensing, and maintenance options specially customized to meet
the needs of large multinational organizations. Targeted audiences include
technology specialists and influential end users in large enterprises.
Marketing efforts and fulfillment are generally coordinated with large account
resellers. The Microsoft Open program is a licensing program that is targeted
for small and medium size organizations. It is available through the reseller
channel and offers discounts based on initial purchase volumes. The Microsoft
Enterprise Agreement program is a licensing program designed to provide a
flexible licensing and service solution tailored to customers making a long-
term licensing commitment. The agreements are designed to increase customer
satisfaction by simplifying license administration, payment terms, and the
contract process.
Solution Providers. Microsoft's Solution Providers program is a
comprehensive support relationship with independent organizations that provide
network and system integration, custom development, training, and technical
support for business computing solutions. The program supports system
integrators, value-added resellers (VARs), consultants, custom application
developers, solution developers, Internet service and hosting organizations,
independent content providers, and site builders (companies that build Web
sites for other companies), as well as technical support and training
organizations. Under this business collaboration strategy,
9
the Company provides sales and product information, development services,
early access to Microsoft products, and customer support tools, including
priority telephone support, education, and business development support. To
ensure high-quality technical services for the Company's products, Microsoft
Solution Providers are required to have Microsoft-certified professionals on
staff. Microsoft Direct Access is a comprehensive and open program that allows
independent technology providers to actively work with Microsoft through the
Microsoft Direct Access program online, quarterly briefings, training, and
action packs.
Certified Professionals. Microsoft receives certification fees through the
Microsoft Certified Professional (MCP) program, a program that provides
credentials for those who have demonstrated in-depth knowledge of at least one
Microsoft product. To become an MCP, a candidate must pass a certification
exam that provides a valid and reliable measure of technical proficiency and
expertise. MCP exams are developed with the input of professionals in the
industry and reflect how Microsoft products are used in organizations
throughout the world. The exams are administered by independent organizations
at more than 1,400 testing centers around the world. MCPs receive access to
technical and product information through an MCP Web site, MSDN Online
Certified Membership, and invitations to conferences, technical training
sessions, and special events. Candidates may pass additional Microsoft
certification exams to further qualify their skills with Microsoft BackOffice
products, development tools, and desktop applications.
Consulting Services. Microsoft Consulting Service assists customers in
deploying and using the Company's computer operating systems, applications,
and communications products. The group works with Solution Providers and helps
create enterprise-wide computing solutions for large corporate accounts.
Microsoft Consulting Services also works with technology solutions providers
to enable them to offer a wide range of Microsoft product-related services
backed by high levels of technical skill and knowledge.
International Sales Sites. The Company has established marketing and/or
support subsidiaries in more than 70 countries. Product is generally delivered
by the Company's owned or outsourced manufacturing operations, which are
located in the geographical region in which the product was sold. By
organizing geographically, the Company is able to provide service to
international channel customers and access to Microsoft professionals located
in the same region to serve their specific needs. Subsidiaries have the
responsibility for selling products to customers, managing licensing programs,
and providing support to all types of customers based in international
countries. Notes to Financial Statements--(see Item 8) describe foreign
operations and export sales.
The Company's international operations, both OEM and finished goods, are
subject to certain risks common to foreign operations in general, such as
governmental regulations, import restrictions, and foreign exchange rate
fluctuations. Microsoft hedges a portion of its foreign exchange risk.
Product Support
The Company provides product support coverage options aligned to the
customer segments, partner segments, and communities. Coverage options range
from standard no-charge toll telephone support to fee-based offerings
providing unlimited 800 number telephone and electronic technical support for
all Microsoft products 24 hours per day, 7 days per week. Support offerings
include the Alliance program, tailored for large enterprises running mission-
critical applications on Microsoft platforms; the Premier program for
enterprises and technical account managers needing regular managed support;
the Authorized Premier Support for all types of businesses who work jointly
with Microsoft and Microsoft Certified Support Center (MCSC) providers; and
the Professional program for small organizations, developers and OEMs. The
Personal program for home users, which provides free online self-help
resources and paid assisted phone support. Users have access to
troubleshooting "wizards" and Microsoft's KnowledgeBase, an online library of
thousands of technical articles that is updated regularly with useful
information regarding Microsoft products. Additionally, several support
offerings include Microsoft TechNet and Microsoft Developer Network
information subscription services.
Support personnel are located in various sites in the United States and
around the world. Certain support is also supplied by qualified third-party
support organizations.
10
As a supplement or alternative to direct support, the Company enhances the
third-party support channel by providing Microsoft Certified Solution
Providers with education, training, tools, and support. Microsoft Certified
Solution Providers include Authorized Training Centers, which offer advanced
product education and certification on Microsoft products; and Authorized
Support Centers, which provide a wide spectrum of multinational support,
multi-vendor support, and integration services.
OEM Channel
Microsoft operating systems are licensed primarily to OEMs under agreements
that grant the OEMs the right to distribute copies of the Company's products
with their computing devices, principally PCs. The Company also markets and
licenses certain server operating systems, desktop applications, hardware
devices, and consumer software programs to OEMs under similar arrangements. In
almost all cases, the products are distributed under Microsoft trademarks. The
Company has OEM agreements covering one or more of its products with virtually
all of the major PC OEMs, including, Acer, Actebis, Compaq, Dell, eMachines,
Fujitsu, Fujitsu Siemens Computers, Gateway, Hewlett Packard, IBM, Micron,
NEC, Samsung, Sony, and Toshiba. A substantial amount of OEM business is also
conducted with system builders, which are low-volume customized PC vendors.
Advertising
The Company works closely with large advertising and direct marketing firms.
Advertising, direct marketing, worldwide packaging, and marketing materials
are targeted to various end-user segments. The Company uses broad consumer
media (television, radio, the Internet, and business publications) and trade
publications. Microsoft has programs under which qualifying resellers and OEMs
are reimbursed for certain advertising expenditures. The company has also
formed an alliance with Best Buy to provide for joint marketing in Best Buy's
retail stores, online, and through other vehicles to demonstrate and sell MSN
Internet access and connectivity solutions.
Customers
The Company's customers include consumers, small and medium-sized
organizations, enterprises, dotcoms, educational institutions, ISPs,
application developers, and OEMs. Most consumers of Microsoft products are
individuals in businesses, government agencies, educational institutions, and
at home. The consumers and organizations obtain Microsoft products primarily
through resellers and OEMs, which include certain Microsoft products with
their computing hardware. Notes to Financial Statements (see Item 8) quantify
customers that represent more than 10% of the Company's revenue. The Company's
practice is to ship its products promptly upon receipt of purchase orders from
its customers and, consequently, backlog is not significant.
Competition
The software business is intensely competitive and subject to extremely
rapid technological change. As the company pursues its largest strategic
initiative, Microsoft .NET, the Company could experience more intense
competition during the transition from the traditional core businesses to its
new products based on the .NET platform. The Company continues to face
movements from PC-based applications to server-based applications or Web-based
application hosting services, from proprietary software to open source
software, and from PCs to Internet-based devices. A number of Microsoft's most
significant competitors, including IBM, Sun Microsystems, Oracle, and AOL, are
collaborating with one another on various initiatives directed at competing
with Microsoft. These initiatives relate in part to efforts to move software
from individual PCs to centrally managed servers, which would present
significant challenges to the Company's historical business model. Other
competitive collaborative efforts also include the development of new platform
technologies that are intended to replicate much of the value of Microsoft
Windows operating systems. New computing form factors, including non-PC
information devices, are gaining popularity and competing with PCs running
Microsoft's software products.
11
Microsoft faces formidable competition in these new areas and in all areas
of its current business activity, including competition from many companies
much larger than Microsoft. The rapid pace of technological change,
particularly in the area of Internet platforms and services, continually
creates new opportunities for existing competitors and start-ups and can
quickly render existing technologies less valuable. The Company also faces
relentless competition from software pirates who unlawfully copy and
distribute Microsoft's copyrighted software products, depriving the Company of
large amounts of revenue on an annual basis.
Operating Systems. Microsoft's operating system products face substantial
competition from a wide variety of companies. Competitors such as IBM, Apple
Computer, Sun Microsystems, and others are vertically integrated in both
software development and hardware manufacturing and have developed operating
systems that they preinstall on computers of their own manufacture. Many of
these operating system software products are also licensed to third-party OEMs
for preinstallation on their computers. Microsoft's operating system products
compete with UNIX-based operating systems from a wide range of companies,
including IBM, AT&T, Hewlett-Packard, Sun Microsystems, The Santa Cruz
Operation, and others. Variants of UNIX run on a wide variety of computer
platforms and have gained increasing acceptance as desktop operating systems.
With an increased attention toward open-source software, the Linux operating
system has gained increasing acceptance. Several computer manufacturers
preinstall Linux on PC Servers and many leading software developers have
written applications that run on Linux. Microsoft Windows operating systems
are also threatened by alternative platforms such as those based on Internet
browsing software and Java technology promoted by AOL and Sun Microsystems.
Business Solutions. The Company competes in the business of providing
enterprise-wide computing solutions with several competitors who enjoy a
larger share of sales and larger installed bases. Many companies offer
operating system software for mainframes and midrange computers, including
IBM, Hewlett-Packard, and Sun Microsystems. Since legacy business systems are
typically support-intensive, these competitors also offer substantial support
services. Software developers that provide competing server applications for
PC-based distributed client/server environments include Oracle, IBM, Computer
Associates, Sybase, and Informix. There are also several software vendors who
offer connectivity servers. As mentioned above, there are numerous companies
and organizations that offer Internet and intranet server software, that
compete against the Company's business systems. Additionally, IBM has a large
installed base of Lotus Notes and cc:Mail, both of which compete with the
Company's collaboration and e-mail products.
Desktop Applications. The Company's competitors include many software
application vendors, such as IBM (Lotus), Oracle, Apple (Filemaker, Inc.), Sun
Microsystems, Corel, Qualcomm, and local application developers in Europe and
Asia. IBM and Corel have large installed bases with their spreadsheet and
word-processor products, respectively, and both have aggressive pricing
strategies. Also, IBM and Apple preinstall certain of their application
software products on various models of their PCs, competing directly with
Microsoft's desktop application software. Additionally, Web-based application
hosting services provide an alternative to PC-based applications such as
Microsoft Office.
Developer Tools. The Company's developer products compete against offerings
from Borland, Macromedia, Oracle, Sun Microsystems, Sybase, Symantec, and
other companies.
Consumer Platforms. A wide variety of companies develop operating systems
for information appliances, including Palm, Apple, Motorola, 3Com, Psion
Software, Sun Microsystems, Microworkz, Be, Inc., WindRiver, Symbian and
others. The Company's WebTV offerings and other multimedia consumer products
face competitors such as AOL, Oracle, Liberate Technologies, NetChannel, and
others. An enormous range of companies, including media conglomerates,
telephone companies, cable companies, retailers, hardware manufacturers, and
software developers, are competing to make interactive services widely
available to the home.
E-Commerce. Microsoft competes with many companies in the e-commerce
business and its major components, including business-to-consumer, business-
to-business, procurement, and supply chain integration. In the development and
marketing of Internet and intranet solutions, major commerce software
competitors
12
provide many different ranges of products and solutions that compete with
Microsoft, including IBM, Oracle, AOL, Sun Microsystems, Broadvision, and many
others.
Online Services. Microsoft's online services network, MSN, faces formidable
competition from AOL (including its CompuServe unit), Yahoo, and a vast array
of Web sites and portals that offer content of all types and e-mail, instant
messaging, calendaring, chat, and search and shopping services, among other
things. In addition, the ease of entry into Internet services has allowed
numerous Web-based service companies to build significant businesses in areas
such as e-mail, electronic commerce, Web search engines, directories, and
information of numerous types. Competitors include AOL, Yahoo, Excite, Lycos,
Infoseek, AltaVista, and many others. The Company's MSNBC joint ventures face
formidable competition from other 24-hour cable and Internet news
organizations such as CNN, CNN Headline News, and Fox News Network. MSNBC also
competes with traditional news media such as newspapers, magazines and
broadcast TV.
Consumer Software and Hardware. The Company's Consumer Group faces smaller,
but focused and branded competitors, particularly in the areas of hardware,
learning, and entertainment. Consolidation in this area of software
development has made certain competitors even stronger. Competitors include
Intuit, Electronic Arts, Mattel (The Learning Company), Hasbro, Logitech,
Voyager, Cendant, and Dorling Kindersley. Still other competitors own branded
content, such as Disney and Lucas Arts.
Additionally, PC-based games and the Company's future Xbox compete and will
compete head-to-head against games created for proprietary systems such as
Nintendo, Sony PlayStation, and Sega. Input devices face substantial
competition from computer manufacturers, since computers are typically sold
with a keyboard and mouse, and other manufacturers of these devices.
The Company's competitive position may be adversely affected by one or more
of these factors in the future, particularly in view of the fast pace of
technological change in the computing industry.
Employees
As of June 30, 2000, the Company employed approximately 39,100 people on a
full-time basis, 27,000 in the United States and 12,100 internationally. Of
the total, 16,000 were in product research and development, 18,200 in sales,
marketing, and support, 1,500 in manufacturing and distribution, and 3,400 in
finance and administration. Microsoft's success is highly dependent on its
ability to attract and retain qualified employees. Competition for employees
is intense in the software industry. To date, the Company believes it has been
successful in its efforts to recruit qualified employees, but there is no
assurance that it will continue to be as successful in the future. None of the
Company's employees is subject to collective bargaining agreements. The
Company believes relations with its employees are excellent.
Item 2. Properties
The Company's corporate offices consist of approximately 6.8 million square
feet of office building space located in King County, Washington situated on
two sites that total approximately 306 acres of land. The Company recently
completed the construction of an office building comprising approximately
145,000 square feet of space and is constructing two buildings with
approximately 495,000 square feet of space that will be occupied in the winter
of 2002. The Company owns 4.8 million square feet of its corporate campus and
leases many buildings in the Puget Sound Region. The Company has leased
several buildings totaling approximately 710,000 square feet of space that
will be occupied by the fall of 2000. To accommodate expansion needs the
Company has an option to purchase 150 acres of land in Issaquah, Washington.
The Company leases many sites domestically totaling approximately 2.4
million square feet of office building space. The construction of a 575,000
square foot campus in the San Francisco, California area was recently
completed.
The Company leases many sites internationally totaling approximately 3.7
million square feet. The Company's European operations center and localization
division consist of a 345,000 square foot campus situated on 17 acres
13
in Dublin, Ireland. The Ireland facilities are partially owned by the Company.
The Company leases a 45,000 square-foot disk duplication facility in Humacao,
Puerto Rico and leases a 36,000 square-foot facility in Singapore for its Asia
Pacific operations center. The Company has large office building space leased
in the following locations: Tokyo, Japan 343,000 square feet;
Unterschleissheim, Germany 253,000 square feet; United Kingdom campus 242,000
square feet; Les Ulis, France 229,000 square feet; and Beijing, China 115,000
square feet.
The Company's facilities are fully used for current operations of all
segments and suitable additional space is available to accommodate expansion
needs.
Item 3. Legal Proceedings
The information set forth in Notes to Financial Statements--Contingencies on
pages 39-41 of the 2000 Annual Report to Shareholders is incorporated herein
by reference and is filed herewith as Exhibit 13.4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2000.
Executive Officers of the Registrant
The executive officers of Microsoft as of September 8, 2000 were as follows:
Name Age Position with the Company
---- --- -------------------------
William H. Gates........ 44 Chairman of the Board; Chief Software Architect
Steven A. Ballmer....... 44 President; Chief Executive Officer
Robert J. Herbold....... 58 Executive Vice President; Chief Operating
Officer
William H. Neukom....... 58 Executive Vice President, Law and Corporate
Affairs; Secretary
James E. Allchin........ 48 Group Vice President, Platforms
Orlando Ayala Lozano.... 44 Group Vice President, Sales, Marketing and
Services
Richard E. Belluzzo..... 46 Group Vice President, Personal Services and
Devices
Paul A. Maritz.......... 45 Group Vice President, Platforms Strategy and
Developer
Robert L. Muglia........ 40 Group Vice President, .NET Services
Jeffrey S. Raikes....... 42 Group Vice President, Productivity and Business
Services
Robert J. Bach.......... 38 Senior Vice President, Home and Retail
Brad Chase.............. 40 Senior Vice President, MSN.com
David Cole.............. 38 Senior Vice President, Personal Services
Platform
John G. Connors......... 41 Senior Vice President, Finance and
Administration; Chief Financial Officer
Jean-Philippe Courtois.. 40 Senior Vice President; President, Microsoft
Europe, Middle East, and Africa
Jon DeVaan.............. 39 Senior Vice President, TV Service and Platform
Paul Flessner........... 41 Senior Vice President, .NET Enterprise Server
Paul H. Gross........... 39 Senior Vice President, Collaboration and
Mobility
Joachim Kempin.......... 58 Senior Vice President, OEM
Michel Lacombe.......... 49 Senior Vice President; Chairman, Microsoft
Europe, Middle East, and Africa
Brian MacDonald......... 38 Senior Vice President, Subscription Service
Craig Mundie............ 51 Senior Vice President, Consumer Strategy
Richard F. Rashid....... 48 Senior Vice President, Research
Steven J. Sinofsky...... 35 Senior Vice President, Office
Brian Valentine......... 40 Senior Vice President, Windows
David Vaskevitch........ 47 Senior Vice President, Business Applications
Bernard P. Vergnes...... 55 Senior Vice President; Chairman Emeritus,
Microsoft Europe, Middle East, and Africa
14
Mr. Gates co-founded Microsoft in 1975 and served as its Chief Executive
Officer from the time the original partnership was incorporated in 1981 until
January 2000, when he resigned as Chief Executive Officer and took on the
position of Chief Software Architect. Mr. Gates has served as Chairman of the
Board since the Company's incorporation.
Mr. Ballmer was named Chief Executive Officer and a director of the Company
in January 2000. He has been President since July 1998, and prior to that, he
had served as Executive Vice President, Sales and Support since February 1992.
He was Senior Vice President, Systems Software from 1989 to 1992. From 1984
until 1989, Mr. Ballmer served as Vice President, Systems Software. He joined
Microsoft in 1980.
Mr. Herbold joined Microsoft as Executive Vice President and Chief Operating
Officer in November 1994. Mr. Herbold had been with The Procter & Gamble
Company since 1968, with experience in information services, advertising and
market research. Most recently, he was P&G's Senior Vice President,
Information Services and Advertising.
Mr. Neukom was named Executive Vice President, Law and Corporate Affairs in
October 1999. He had been Senior Vice President, Law and Corporate Affairs
since February 1994. He joined Microsoft in 1985 as Vice President, Law and
Corporate Affairs.
Mr. Allchin was named Group Vice President, Platforms in December 1999. He
had been Senior Vice President, Platforms since March 1999. He was previously
Senior Vice President, Personal and Business Systems since February 1996,
Senior Vice President, Business Systems Division since November 1994, and had
been Vice President, Business Systems Division since July 1991. Mr. Allchin
joined Microsoft in 1991.
Mr. Ayala was named Group Vice President, Sales, Marketing and Services in
August 2000. He had been Senior Vice President, South Pacific and Americas
since February 1998 and before holding that position was Vice President of the
developing markets of Africa, India, the Mediterranean and Middle East, Latin
America, Southeast Asia and the South Pacific. He joined Microsoft in May 1991
as Senior Director of the Latin America Region.
Mr. Belluzzo was named Group Vice President, Personal Services and Devices
in August 2000. He joined Microsoft as Group Vice President, Consumer and
Commence in September 1999. Mr. Belluzzo had been Chairman of the Board and
Chief Executive Officer, Silicon Graphics, Inc. since January 1998. Prior to
his employment at Silicon Graphics, Inc., Belluzzo was employed by the
Hewlett-Packard Company for 22 years, serving since 1995 as Executive Vice
President and General Manager of the computer organization.
Mr. Maritz was named Group Vice President, Platforms Strategy and Developer
in March 2000. He had been Group Vice President, Developer since March 1999.
He was previously Group Vice President, Platforms and Applications since
October 1996 and before holding that position was Group Vice President,
Platforms since May 1995. Mr. Maritz had been Senior Vice President, Product
and Technology Strategy since November 1994 and had been Senior Vice
President, Systems Division since February 1992. He had been Vice President,
Advanced Operating Systems since 1989. Mr. Maritz joined Microsoft in 1986. On
September 13, 2000, Microsoft announced that Mr. Maritz is retiring from the
Company, but will continue to serve as a consultant to Microsoft on strategic
and business issues.
Mr. Muglia was named Group Vice President, .NET Services in August 2000. He
had been Group Vice President, Business Productivity since December 1999. He
was named Senior Vice President, Business Productivity in March 1999 and was
named Senior Vice President, Applications and Tools in February 1998. He had
been Vice President, Server Applications since 1997 and was Vice President,
Developer Tools since 1995. He joined Microsoft in January 1988.
Mr. Raikes was named Group Vice President, Productivity and Business
Services in August 2000. He had been Group Vice President, Sales and Support
since July 1998. Before holding that position, he had been Group
15
Vice President, Sales and Marketing since July 1996. He was named Senior Vice
President, Microsoft North America in January 1992 and had been Vice
President, Office Systems since 1990. Mr. Raikes joined Microsoft in 1981.
Mr. Bach was named Senior Vice President, Home and Retail in March 2000. He
had been Vice President, Home and Retail since March 1999. Before holding that
position, he had been Vice President, Learning, Entertainment and Productivity
since 1996. Mr. Bach joined Microsoft in 1988.
Mr. Chase was named Senior Vice President, MSN.com in December 1999. He had
been Senior Vice President, Consumer and Commerce since September 1999. Mr.
Chase had been Vice President, Consumer and Commerce since March 1999. He was
Vice President, Developer Relations and Windows Marketing. Mr. Chase joined
Microsoft in July 1987.
Mr. Cole was named Senior Vice President, Personal Services Platform in
August 2000. He had been Senior Vice President, Consumer Services since
December 1999. Before holding that position, he had been Vice President,
Consumer Windows since March 1999. He was Vice President, Web Client and
Consumer Experience and Vice President, Internet Client and Collaboration. Mr.
Cole joined Microsoft in 1986.
Mr. Connors was named Senior Vice President, Finance and Administration, and
Chief Financial Officer in December 1999. He had been Vice President,
Enterprise since March 1999. Mr. Connors had been Vice President, Information
Technology, and Chief Information Officer since July 1996. He joined Microsoft
in January 1989.
Mr. Courtois was named Senior Vice President and President, Microsoft
Europe, Middle East, and Africa in July 2000. He had been Vice President,
Customer Marketing since July 1998. Before holding that position, he had been
Vice President of Microsoft Europe since 1997 and General Manager for
Microsoft France since 1994. Mr. Courtois joined Microsoft in 1984.
Mr. DeVaan was named Senior Vice President, TV Service and Platform in
December 1999. He had been Senior Vice President, Consumer and Commerce since
September 1999. Mr. DeVaan had been Vice President, Consumer and Commerce
since March 1999. He had been Vice President, Desktop Applications since 1995.
Mr. DeVaan joined Microsoft in 1985.
Mr. Flessner was named Senior Vice President, .NET Enterprise Server in
December 1999. He had been Vice President, Database and Data Access. Since
joining the Company, Mr. Flessner's primary responsibilities have been the
development of Microsoft's database business. He assumed responsibility for
the engineering of Microsoft SQL Server in 1995. He joined Microsoft in 1994.
Mr. Gross was named Senior Vice President, Collaboration and Mobility in
March 2000. He had been Senior Vice President, Server Applications since
December 1999 and Vice President, Server Applications since March 1999. Before
holding that position, he had been Vice President, Developer Tools. Mr. Gross
joined Microsoft in September 1996. Before joining Microsoft, he was Senior
Vice President of Research and Development at Borland International Inc.
Mr. Kempin was named Senior Vice President, OEM in August 1993. He had been
Vice President, OEM Sales since 1987. Mr. Kempin joined Microsoft in 1983.
Mr. Lacombe is Chairman, Microsoft Europe, Middle East, and Africa. He was
named Senior Vice President, Europe, Middle East, and Africa in February 1998.
He had been President, Microsoft Europe and Senior Vice President, Microsoft
since July 1997. He had been Vice President, Europe since September 1995. Mr.
Lacombe joined Microsoft in 1983.
Mr. MacDonald was named Senior Vice President, Subscription Service in
August 2000. He had been Vice President, New Application Technologies since
December 1999. Before holding that position, he started and led the team that
created the Microsoft Outlook messaging and collaboration client. He joined
Microsoft in 1989.
16
Mr. Mundie is Senior Vice President, Consumer Strategy. He was named Senior
Vice President, Consumer Platforms in February 1996. He was named Senior Vice
President, Consumer Systems in May 1995 and had been Vice President, Advanced
Consumer Technology since July 1993. He joined Microsoft as General Manager,
Advanced Consumer Technology in December 1992.
Mr. Rashid was named Senior Vice President, Research in May 2000. He had
been Vice President, Research since July 1994. He joined Microsoft in
September 1991.
Mr. Sinofsky was named Senior Vice President, Office in December 1999. He
had been Vice President, Office since December 1998. Mr. Sinofsky joined the
Office team in 1994, increasing his responsibility with each subsequent
release of the desktop suite. He joined Microsoft in July 1989.
Mr. Valentine was named Senior Vice President, Windows in December 1999. He
had been Vice President, Business and Enterprise since March 1999. He had been
Vice President, Windows since December 1998. Before managing the Windows
group, Mr. Valentine managed the server applications division and had been
responsible for the Exchange product unit. He joined Microsoft in 1987.
Mr. Vaskevitch was named Senior Vice President, Business Applications in
March 2000. He had been Senior Vice President, Developer since December 1999.
Before holding that position, he had been Vice President, Distributed
Applications Platform. He joined Microsoft in 1986.
Mr. Vergnes is a Senior Vice President and Chairman Emeritus, Microsoft
Europe, Middle East, and Africa. He was named President, Microsoft Europe in
April 1992. He had been Vice President, Europe since 1989. Mr. Vergnes joined
Microsoft in 1983.
17
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The information set forth on page 43 of the 2000 Annual Report to
Shareholders is incorporated herein by reference and is filed herewith as
Exhibit 13.1.
Reference is also made to the information on put warrants described in the
notes to financial statements incorporated herein by reference and filed
herewith as Exhibit 13.4. All such transactions are exempt from registration
under Section 4 (2) of the Securities Act of 1933. Each transaction was
privately negotiated and each offeree and purchaser was an accredited
investor/qualified institutional buyer. No public offering or public
solicitation was used by the registrant in the placement of these securities.
On June 2, 2000, the Company issued an aggregate of 37,530 of its common
shares pursuant to the acquisition by the Company of substantially all of the
assets of NetGames USA, Inc., a Kansas corporation ("NetGames") owned by
eleven shareholders. All of the Company common shares issued in this
transaction were issued in a non-public offering pursuant to an exemption from
the registration requirements of the Securities Act of 1933, as amended (the
"1933 Act"), under Section 4(2) of the 1933 Act. This sale was made without
general solicitation or advertising. The Company has filed a Registration
Statement on form S-3 covering the resale of such securities. All net proceeds
from the sale of such securities will go to the selling shareholders who offer
and sell their shares. The Company has not received and will not receive any
proceeds from the sale of these common shares other than the assets and
liabilities of NetGames.
Item 6. Selected Financial Data
The information set forth on the inside front cover of the 2000 Annual
Report to Shareholders is incorporated herein by reference and is filed
herewith as Exhibit 13.2.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The information set forth on pages 15-24 of the 2000 Annual Report to
Shareholders is incorporated herein by reference and is filed herewith as
Exhibit 13.3.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The information set forth on page 23 of the 2000 Annual Report to
Shareholders is incorporated herein by reference and is filed herewith as
Exhibit 13.3.
Item 8. Financial Statements and Supplementary Data
The following financial statements for the Company and independent auditors'
report set forth on pages 14, 25-42, and 45 of the 2000 Annual Report to
Shareholders is incorporated herein by reference and is filed herewith as
Exhibit 13.4.
. Income Statements for the three years ended June 30, 2000
. Cash Flows Statements for the three years ended June 30, 2000
. Balance Sheets as of June 30, 1999 and 2000
. Stockholders' Equity Statements for the three years ended June 30, 2000
. Notes to Financial Statements
. Independent Auditors' Report
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
18
PART III
Item 10. Directors of the Registrant
Information with respect to Directors may be found under the caption
"Election of Directors and Management Information" on pages 1 and 2 of the
Company's Proxy Statement dated September 8, 2000, for the Annual Meeting of
Shareholders to be held November 9, 2000 (the "Proxy Statement"). Such
information is incorporated herein by reference.
Item 11. Executive Compensation
The information in the Proxy Statement set forth under the captions
"Information Regarding Executive Officer Compensation" on pages 4 through 6
and "Information Regarding the Board and its Committees" on page 2 is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the caption "Information Regarding
Beneficial Ownership of Principal Shareholders, Directors, and Management" on
page 3 of the Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under the caption "Certain Relationships and
Related Transactions" on page 8 of the Proxy Statement is incorporated herein
by reference. The information in Notes to Financial Statements--Operational
Transactions on pages 38 through 39 of the 2000 Annual Report to Shareholders
is incorporated herein by reference and is filed herewith as Exhibit 13.4.
19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements and Schedules
The financial statements as set forth under Item 8 of this report on Form
10-K are incorporated herein by reference.
Financial statement schedules have been omitted since they are either not
required, not applicable, or the information is otherwise included.
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the quarter ended June
30, 2000. The Company disclosed that on June 7, 2000, the United States
District Court for the District of Columbia entered a Final Judgment and
Memorandum and Order in the case United States of America v. Microsoft
Corporation. Also, the Company disclosed that on June 13, 2000, it filed a
Notice of Appeal and Motion for a Stay of the Judgment Pending Appeal,
appealing to the United States Court of Appeals for the District of
Columbia Circuit the Final Judgment and the Findings of Fact and
Conclusions of Law entered on April 3, 2000 finding that Microsoft violated
the federal and state antitrust laws. In addition, the United States Court
of Appeals for the District of Columbia Circuit entered an Order on June
13, 2000 agreeing to hear the appeal by the court sitting en banc.
(c) Exhibit Listing
Exhibit
Number Description
------- -----------
3.1 Restated Articles of Incorporation of Microsoft Corporation (1)
3.2 Bylaws of Microsoft Corporation (1)
10.1 Microsoft Corporation 1991 Stock Option Plan (2)
10.2 Microsoft Corporation 1981 Stock Option Plan (3)
10.3 Microsoft Corporation 1999 Stock Option Plan for Non-Employee
Directors (4)
10.4 Microsoft Corporation Stock Option Plan for Consultants and
Advisors (5)
10.5 Microsoft Corporation 1997 Employee Stock Purchase Plan
10.6 Microsoft Corporation Savings Plus Plan
10.7 Trust Agreement dated June 1, 1993 between Microsoft Corporation
and First Interstate Bank of Washington (6)
10.8 Form of Indemnification Agreement (6)
11. Computation of Earnings Per Share (7)
13.1 Quarterly and Market Information Incorporated by Reference to Page
43 of 2000 Annual Report to Shareholders ("2000 Annual Report")
13.2 Selected Financial Data Incorporated by Reference to the inside
front cover of 2000 Annual Report
13.3 Management's Discussion and Analysis of Results of Operations and
Financial Condition Incorporated by Reference to Pages 15-24 of
2000 Annual Report
13.4 Financial Statements Incorporated by Reference to Pages 14, 25-42,
and 45 of 2000 Annual Report
21. Subsidiaries of Registrant
23. Independent Auditors' Consent
27. Financial Data Schedule
- --------
(1) Incorporated by reference to Annual Report on Form 10-K For The Fiscal
Year Ended June 30, 1999.
(2) Incorporated by reference to Annual Report on Form 10-K For The Fiscal
Year Ended June 30, 1997.
20
(3) Incorporated by reference to Registration Statement 33-37623 on Form S-8.
(4) Incorporated by reference to Registration Statement 333-91755 on Form S-8.
(5) Incorporated by reference to Annual Report on Form 10-K For The Fiscal Year
Ended June 30, 1994.
(6) Incorporated by reference to Annual Report on Form 10-K For The Fiscal Year
Ended June 30, 1993.
(7) Incorporated by reference to Exhibit 13.4 filed herein.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Redmond, State of Washington, on September 28, 2000.
MICROSOFT CORPORATION
/s/ John G. Connors
By __________________________________
John G. Connors
Senior Vice President, Finance
and
Administration; Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Registrant
and in the capacities indicated on September 28, 2000.
Signature Title
--------- -----
Chairman of the Board of Directors and
______________________________________ Chief Software Architect
William H. Gates
/s/ Steven A. Ballmer President and Chief Executive Officer
______________________________________
Steven A. Ballmer
/s/ Paul G. Allen Director
______________________________________
Paul G. Allen
Director
______________________________________
Richard A. Hackborn
/s/ David F. Marquardt Director
______________________________________
David F. Marquardt
/s/ Ann McLaughlin Director
______________________________________
Ann McLaughlin
/s/ Wm. G. Reed, Jr. Director
______________________________________
Wm. G. Reed, Jr.
/s/ Jon A. Shirley Director
______________________________________
Jon A. Shirley
/s/ John G. Connors Senior Vice President, Finance and
______________________________________ Administration; Chief Financial Officer
John G. Connors
22
Exhibit Index
Exhibit
Number Description
------- -----------
3.1 Restated Articles of Incorporation of Microsoft Corporation (1)
3.2 Bylaws of Microsoft Corporation (1)
10.1 Microsoft Corporation 1991 Stock Option Plan (2)
10.2 Microsoft Corporation 1981 Stock Option Plan (3)
10.3 Microsoft Corporation 1999 Stock Option Plan for Non-Employee
Directors (4)
10.4 Microsoft Corporation Stock Option Plan for Consultants and
Advisors (5)
10.5 Microsoft Corporation 1997 Employee Stock Purchase Plan
10.6 Microsoft Corporation Savings Plus Plan
10.7 Trust Agreement dated June 1, 1993 between Microsoft Corporation
and First Interstate Bank of Washington (6)
10.8 Form of Indemnification Agreement (6)
11. Computation of Earnings Per Share (7)
13.1 Quarterly and Market Information Incorporated by Reference to Page
43 of 2000 Annual Report to Shareholders ("2000 Annual Report")
13.2 Selected Financial Data Incorporated by Reference to the inside
front cover of 2000 Annual Report
13.3 Management's Discussion and Analysis of Results of Operations and
Financial Condition Incorporated by Reference to Pages 15-24 of
2000 Annual Report
13.4 Financial Statements Incorporated by Reference to Pages 14, 25-42,
and 45 of 2000 Annual Report
21. Subsidiaries of Registrant
23. Independent Auditors' Consent
27. Financial Data Schedule
- --------
(1) Incorporated by reference to Annual Report on Form 10-K For The Fiscal Year
Ended June 30, 1999.
(2) Incorporated by reference to Annual Report on Form 10-K For The Fiscal Year
Ended June 30, 1997.
(3) Incorporated by reference to Registration Statement 33-37623 on Form S-8.
(4) Incorporated by reference to Registration Statement 333-91755 on Form S-8.
(5) Incorporated by reference to Annual Report on Form 10-K For The Fiscal Year
Ended June 30, 1994.
(6) Incorporated by reference to Annual Report on Form 10-K For The Fiscal Year
Ended June 30, 1993.
(7) Incorporated by reference to Exhibit 13.4 filed herein.