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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, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________ to ____________
Commission File Number 0-14278
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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
2 3/4% Convertible Exchangeable Principal-Protected Preferred 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 10, 1999 was $375,039,342,820.
The number of shares outstanding of the registrant's common stock as of
September 10, 1999 was 5,141,508,124.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Annual Report to Shareholders are incorporated by
reference into Parts I, II, and IV. Portions of the definitive Proxy Statement
dated September 10, 1999 to be delivered to shareholders in connection with
the Annual Meeting of Shareholders to be held November 10, 1999 are
incorporated by reference into Part III.
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MICROSOFT CORPORATION
FORM 10-K
For The Fiscal Year Ended June 30, 1999
INDEX
Part I
Item 1. Business......................................................... 1
Item 2. Properties....................................................... 13
Item 3. Legal Proceedings................................................ 13
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.......................................................... 16
Item 6. Selected Financial Data.......................................... 16
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.............................................. 16
Item 7a. Quantitative and Qualitative Disclosures about Market Risk....... 16
Item 8. Financial Statements and Supplementary Data...................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures............................................ 16
Part III
Item 10. Directors of the Registrant...................................... 17
Item 11. Executive Compensation........................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and Management... 17
Item 13. Certain Relationships and Related Transactions................... 17
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K......................................................... 18
Signatures....................................................... 19
i
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 intelligent devices, personal computers (PCs) and servers; 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; e-commerce
platforms; and alliances with companies involved with broadband access and
various forms of digital interactivity. Microsoft also licenses consumer
software programs; sells PC input devices; 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 and Support Group, and the Operations Group.
The Business Divisions act in parallel, each with responsibility for the
product planning and marketing strategies for their respective customer
segments. These customer segments are the Windows(R) Platforms segment, the
Business Productivity Applications and Developer segment, and the Consumer,
Commerce, and Other segment.
The Windows Platforms segment contains three groups. The Business and
Enterprise Group develops and markets PC and server operating systems required
by large organizations and IT professionals. The Consumer Windows Group
oversees and develops operating systems designed primarily for stand-alone PCs
used in homes and small businesses. The Streaming Media Division develops a
digital media platform for streaming music, video, and synchronized multimedia
over the Internet.
The Business Productivity Applications and Developer segment has two primary
groups organized around providing software and solutions for knowledge workers
and software developers. The Business Productivity Group creates and markets
primarily desktop and server applications. The Developer Group builds
architecture and software tools for developers.
The Consumer, Commerce, and Other segment includes the Consumer and Commerce
Group and the Home and Retail Division. The Consumer and Commerce Group
provides services to consumers over the Internet and provides software
solutions and services for businesses to conduct commerce on the Internet. The
Home and Retail Division creates and markets productivity programs, learning
and entertainment products, and hardware peripherals. 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 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 also manages the channels that serve customers by working
with OEMs, distributors, and resellers. In addition to the OEM channel,
Microsoft has
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three major geographic sales organizations: the South Pacific and Americas;
Europe, Middle East, and Africa; and Asia. The Sales 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; and the publishing efforts of
Microsoft Press.
Products
Windows Platforms
The Windows Platforms segment is responsible for the development of PC and
server platforms, including the Microsoft(R) Windows and Windows NT(R)
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 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 95. The successor to the MS-DOS(R) operating system and Windows 3.x,
Windows 95 was released in August 1995. Windows 95 is a fully integrated,
multitasking 32-bit operating system, designed to be compatible with Intel
microprocessor-based PCs, most hardware devices, and applications for Windows
3.x and MS-DOS.
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 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.
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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.
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, and Web authoring tools.
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, 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 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.
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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.
Developer
The Developer Group provides software development tools and distributed
application platforms for 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, 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 and Commerce
The Consumer and Commerce Group supplies services and content to consumers
over the Internet and solutions to businesses by providing software and
services to conduct commerce on the Internet. The core
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business products and services include MSN Internet Access; WebTV(R) Internet
Service; MSN Portal and vertical properties; and MSN Commerce Platforms.
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 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 Expedia(TM) provides one-stop travel shopping and reservation
services, providing reliable, real-time access to schedule, pricing, and
availability information for airlines, hotels, and major car rental companies.
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. 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.
MSN Commerce. The MSN Commerce business sells platforms that power the MSN
vertical services. 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. MSN 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.
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.
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 DreamWorks Interactive L.L.C., a software company
that develops interactive and multimedia products. DreamWorks SKG owns the
remaining 50 percent. Microsoft owns 50 percent of MSNBC Cable L.L.C., a 24-
hour cable 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.
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Home and Retail
The Home and Retail Division develops products that are designed to meet the
needs of consumers in the home environment, most of which are licensed and
sold to and through retail channels to consumers. Major product categories
include learning, productivity, personal finance, entertainment, and hardware
peripherals.
Learning. Learning titles include Microsoft Encarta(R) multimedia
encyclopedia and Microsoft Bookshelf(R) 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.
Microsoft Flight Simulator is a popular aircraft flight simulation product.
Other games include Age of Empires(R), Monster Truck Madness(R), racing
simulation, Microsoft Baseball, Microsoft Golf, 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 is an
ergonomically designed mouse with a center-positioned wheel that provides
scrolling and data zooming. 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. ActiMates(TM) Interactive Barney(TM), Authur(R),
D.W.(TM), and Teletubbies(TM) are two-way interactive, talking and moving,
wireless plush character peripherals for young children that operate via
programming from CD-ROM (PC mode), a VHC (TV mode), and an on-board ROM chip
(stand-alone mode).
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.
6
Customer Sales Groups
The Company has several customer sales groups that work with their customers
and partners to provide sales and marketing activities.
The enterprise sales group has responsibility for sales and marketing
activities that target organizational customer segments by working directly
with these organizations to create and support enterprise-wide,
mission-critical solutions for business computing needs. The group is divided
into the following customer selling teams: depth and breadth enterprise sales,
small and medium enterprise sales, and education sales. The enterprise sales
group also provides seminars and forums to familiarize enterprises with
technology issues and solutions.
The depth and breadth enterprise sales group creates the depth and breadth
licensing programs, drives systemic improvements for enterprise customers, and
manages key enterprise partners, including USWeb, EDS, AT&T, Computer Sciences
Corporation, and others. The small and medium enterprise customer group has
responsibility for activities that target groups of users in small and medium
organizations. The group works with channel partners such as distributors,
aggregators, value-added resellers, and Solution Providers to provide complete
business solutions. The group's sales and marketing activities include managing
technical training programs for Solution Providers (described below) and
channel resellers and supporting and providing seminars, events, and sales
training for channel partners.
The small and medium enterprise customer group also runs the Microsoft
Certified Professional program, which ensures the quality of Microsoft training
for individuals and corporations. The education customer group works with key
education institutions and other industry partners to provide programs and
technology tools that help them expand and enhance learning opportunities for
students. The education customer group has four primary areas, including higher
education, K-12, non-profit organizations, and management of the education
channel and resellers.
The business solutions customer group targets key line of business partners,
including corporate developers and independent software vendors (ISVs) who
build business applications with a development platform based on Microsoft
Windows and BackOffice architecture. The group's sales and marketing activities
include providing industry-specific technical training, seminars, and events
for ISVs. The business solutions customer group also focuses on vertical and
horizontal industries and their associated software applications. A key focus
of the group is Microsoft Developer products, including Developer Tools,
Microsoft SQL Server, and Microsoft Windows DNA Architecture.
The network solutions customer group is responsible for introducing the
Company's products and technologies to public infrastructure owners and
Internet Content Providers (ICPs). 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,
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.
7
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 of 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 1997, 1998, and 1999, the Company spent $1.86 billion,
$2.46 billion, and $2.81 billion, respectively, on product research and
development activities. Those amounts represented 15.6%, 17.0%, and 15.0%,
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.
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 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.
8
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, 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 Services assists customers in
deploying and using the Company's computer operating systems, applications, and
communications products. The group works with
9
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 Professional program for small organizations, developers, OEMs, and
Microsoft Certified Solution Providers ranging from small organizations to
large-account resellers (LARs); and the Personal program for home users, which
provides free online self-help resources and 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.
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 desktop applications, hardware peripherals, 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, Fujitsu/ICL, Gateway
2000, Hewlett-Packard, IBM, Micron, NEC, Packard Bell NEC, Samsung, Siemens,
Toshiba, and Vobis. A substantial amount of OEM business is also conducted
with system builders, which are low-volume customized PC vendors.
10
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.
Customers
The Company's customers include consumers, small and medium-sized
organizations, enterprises, 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. The Company is faced with the possibility of
paradigm shifts 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 (Netscape), 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. 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.
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, Compaq, Hewlett-Packard, 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 PCs and many leading software
developers have written applications that run on Linux. As PC technology
increasingly moves toward connectivity and communications, Microsoft's
operating system products face increased competition from network server
operating systems such as Novell's NetWare, Banyan's Vines, the many variants
of UNIX, IBM's OS/2, "middleware" products such as IBM's Lotus Notes, and
intranet servers from Apache, AOL (Netscape),
11
IBM, Sun Microsystems, and others. 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 Systems. 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 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 Sun Microsystems, 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 provide many different ranges of products and solutions that
compete with Microsoft, including IBM, Oracle, AOL (Netscape), Sun
Microsystems, Broadvision, and many others.
Online Services. Microsoft's online services network, MSN, faces formidable
competition from AOL (including its CompuServe unit), AT&T, and other
traditional online services as well as a vast array of Web sites and portals
that offer content of all types and email, 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.
News Services. 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.
Home and Retail. The Company's Home and Retail division faces many 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,
12
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 are increasingly competing 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, 1999, the Company employed 31,396 people on a full-time basis,
21,802 in the United States and 9,594 internationally. Of the total, 12,090
were in product research and development, 15,186 in sales, marketing, and
support, 1,270 in manufacturing and distribution, and 2,850 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 6.7 million square
feet of office building space located in King County, Washington. There are two
sites that total approximately 300 acres of land. The Company recently
completed the construction of two office buildings comprising approximately
420,000 square feet of space and is constructing a building with approximately
145,000 square feet of space. This site will be occupied in the winter of 2000.
The Company owns 4.7 million square feet of its corporate campus. The Company
leases many buildings in the Puget Sound Region. The Company recently leased
four buildings with approximately 420,000 square feet of space, which will be
occupied in the fall of 1999.
The Company leases many sites domestically. The Company entered into a build-
to-suit lease agreement in the San Francisco, California Bay Area. This campus,
when complete, will be approximately 517,000 square feet. It is scheduled to
open in the fall of 1999.
The Company's European operations center and localization division consist of
a 345,000 square-foot campus situated on 17 acres in Dublin, Ireland. The
Ireland facilities are partially owned by the Company. In the United Kingdom,
the Company executed a sale/leaseback of three buildings that total 230,000
square feet. In Les Ulis, France, the Company executed a sale/leaseback on a
199,000 square-foot office building. The Company leases a 45,000 square-foot
disk duplication facility in Humacao, Puerto Rico. The Company leases a 36,000
square-foot facility in Singapore for its Asia Pacific operations center.
In addition, the Company leases many other sites around the world.
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
page 40-41 of the 1999 Annual Report to Shareholders is incorporated herein by
reference and is filed herewith as Exhibit 13.4.
13
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 1999.
Executive Officers of the Registrant
The executive officers of Microsoft as of September 10, 1999 were as
follows:
Name Age Position with the Company
---- --- -------------------------
William H. Gates......... 43 Chairman of the Board; Chief Executive Officer
Steven A. Ballmer........ 43 President
Robert J. Herbold........ 57 Executive Vice President; Chief Operating Officer
Richard Belluzzo......... 45 Group Vice President, Consumer and Commerce
Frank M. (Pete) Higgins.. 41 Group Vice President
Paul A. Maritz........... 44 Group Vice President, Developer
Jeffrey S. Raikes........ 41 Group Vice President, Sales and Support
James E. Allchin......... 47 Senior Vice President, Platforms
Orlando Ayala Lozano..... 43 Senior Vice President, South Pacific and Americas
Bradley M. Chase......... 39 Senior Vice President, Consumer and Commerce
John S. DeVaan........... 38 Senior Vice President, Consumer and Commerce
Joachim Kempin........... 57 Senior Vice President, OEM Sales
Michel Lacombe........... 48 Senior Vice President; President, Microsoft Europe, Middle East,
and Africa
Gregory B. Maffei........ 39 Senior Vice President, Finance and Administration; Chief Financial Officer
Robert L. Muglia......... 39 Senior Vice President, Business Productivity
Craig Mundie............. 50 Senior Vice President, Consumer Strategy
William H. Neukom........ 57 Senior Vice President, Law and Corporate Affairs; Secretary
Bernard P. Vergnes....... 54 Senior Vice President; Chairman, Microsoft Europe, Middle East,
and Africa
Mr. Gates co-founded Microsoft in 1975 and has been its Chairman of the
Board and Chief Executive Officer since the original partnership was
incorporated in 1981.
Mr. Ballmer was named President in July 1998 and had been Executive Vice
President, Sales and Support since February 1992. He had been Senior Vice
President, Systems Software since 1989. 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. Belluzzo 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 twenty-two years, serving since 1995 as Executive
Vice President and General Manager of the computer organization. From 1993 to
1995, Mr. Belluzzo was General Manager of the Computer Products Organization.
Mr. Higgins is on leave from Microsoft. Mr. Higgins was named Group Vice
President, Interactive Media Group in October 1996. He was named Group Vice
President, Applications and Content in May 1995 and Senior Vice President,
Desktop Applications Division in March 1993. He had been Vice President,
Desktop Applications Division since 1992. Mr. Higgins joined Microsoft in
1983.
14
Mr. Maritz was named Group Vice President, Developer in March 1999. He had
been 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.
Mr. Raikes was named Group Vice President, Sales and Support in July 1998.
He had been Group 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. Allchin was named Senior Vice President, Platforms in March 1999. He had
been Senior Vice President, Personal and Business Systems since February 1996.
He was previously 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 Senior Vice President, South Pacific and Americas in
February 1998. He had been 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. Chase was named Senior Vice President, Consumer and Commerce in
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. DeVaan was named Senior Vice President, Consumer and Commerce in
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. Kempin was named Senior Vice President, OEM Sales in August 1993. He had
been Vice President, OEM Sales since 1987. Mr. Kempin joined Microsoft in
1983.
Mr. Lacombe is President, 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 and
Vice President, End User Customer Unit, Europe since April 1994. Mr. Lacombe
had been Regional Director of Southern Europe from May 1991. Mr. Lacombe
joined Microsoft in 1983.
Mr. Maffei was named Senior Vice President, Finance and Administration in
March 1999. He was named Vice President, Finance and Chief Financial Officer
in July 1997. Mr. Maffei was named Vice President, Corporate Development in
July 1996 and Treasurer in April 1994. He joined Microsoft in 1993 as
Director, Business Development and Investments.
Mr. Muglia is Senior Vice President, Business Productivity. He 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. 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. Neukom was named Senior Vice President, Law and Corporate Affairs in
February 1994. He joined Microsoft in 1985 as Vice President, Law and
Corporate Affairs.
Mr. Vergnes is a Senior Vice President and Chairman, 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.
15
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The information set forth on page 43 of the 1999 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 sales of 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.
During the quarter, the Company issued an aggregate of 507,140 of its common
shares pursuant to the following transactions: (i) the acquisition by the
Company of certain assets of Bruce Carver and Associates, Inc. and Chris J.
Jones and Associates Inc., owned by two shareholders, (ii) the merger in
exchange for the outstanding capital shares of Jump Networks, Inc., owned by
six shareholders, and (iii) the merger in exchange for the outstanding capital
shares of OmniBrowse, Inc., owned by five shareholders. All of the Microsoft
common shares issued in these transactions were issued 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. These sales were
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 offered 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 the acquired companies.
Item 6. Selected Financial Data
The information set forth on page 2 of the 1999 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 page 18-26 of the 1999 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 25 of the 1999 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 and supplementary data for the Company
and independent auditors' report set forth on pages 17 and 27-44 of the 1999
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, 1999
. Cash Flows Statements for the three years ended June 30, 1999
. Balance Sheets as of June 30, 1998 and 1999
. Stockholders' Equity Statements for the three years ended June 30, 1999
. Notes to Financial Statements
. Independent Auditors' Report
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures
None.
16
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 10, 1999, for the Annual Meeting of
Shareholders to be held November 10, 1999 (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 7 of the Proxy Statement is incorporated herein
by reference. The information in Notes to Financial Statements--Operational
Transactions on page 39 of the 1999 Annual Report to Shareholders is
incorporated herein by reference and is filed herewith as Exhibit 13.4.
17
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
No reports on Form 8-K were filed during the last quarter of fiscal 1999.
(c) Exhibit Listing
Exhibit
Number Description
------- -----------
3.1 Restated Articles of Incorporation of Microsoft Corporation
3.2 Bylaws of Microsoft Corporation
10.1 Microsoft Corporation 1991 Stock Option Plan (1)
10.2 Microsoft Corporation 1981 Stock Option Plan (2)
10.3 Microsoft Corporation Stock Option Plan for Non-Employee
Directors (3)
10.4 Microsoft Corporation Stock Option Plan for Consultants and
Advisors (3)
10.5 Microsoft Corporation 1997 Employee Stock Purchase Plan (1)
10.6 Microsoft Corporation Savings Plus Plan (3)
10.7 Trust Agreement dated June 1, 1993 between Microsoft Corporation
and First Interstate Bank of Washington (4)
10.8 Form of Indemnification Agreement (4)
11. Computation of Earnings Per Share (5)
13.1 Quarterly and Market Information Incorporated by Reference to
Page 43 of 1999 Annual Report to Shareholders ("1999 Annual
Report")
13.2 Selected Financial Data Incorporated by Reference to Page 2 of
1999 Annual Report
13.3 Management's Discussion and Analysis of Results of Operations
and Financial Condition Incorporated by Reference to Pages 18-26
of 1999 Annual Report
13.4 Financial Statements Incorporated by Reference to Pages 17 and
27-44 of 1999 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, 1997.
(2) Incorporated by reference to Registration Statement 33-37623 on Form S-8.
(3) Incorporated by reference to Annual Report on Form 10-K For The Fiscal
Year Ended June 30, 1994.
(4) Incorporated by reference to Annual Report on Form 10-K For The Fiscal
Year Ended June 30, 1993.
(5) Incorporated by reference to Exhibit 13.4 filed herein.
18
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, 1999.
MICROSOFT CORPORATION
/s/ Gregory B. Maffei
By __________________________________
Gregory B. Maffei
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, 1999.
Signature Title
--------- -----
/s/ William H. Gates Chairman of the Board of Directors
___________________________________________ and Chief Executive Officer
William H. Gates
/s/ Paul G. Allen Director
___________________________________________
Paul G. Allen
Director
___________________________________________
Jill E. Barad
/s/ Richard A. Hackborn Director
___________________________________________
Richard A. Hackborn
/s/ David F. Marquardt Director
___________________________________________
David F. Marquardt
/s/ Wm. G. Reed, Jr. Director
___________________________________________
Wm. G. Reed, Jr.
/s/ Jon A. Shirley Director
___________________________________________
Jon A. Shirley
/s/ Gregory B. Maffei Senior Vice President, Finance and Administration;
___________________________________________ Chief Financial Officer
Gregory B. Maffei (Principal Financial and Accounting Officer)
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