Microsoft Announces Record Fiscal 1997 Revenues and Income
July 17, 1997
Continued adoption of 32-bit systems and applications drive revenue growth to 31%

Redmond, Washington, July 17, 1997 — Microsoft Corporation today announced revenues of $11.36 billion for the fiscal year ended June 30, 1997, a 31% increase over the $8.67 billion reported last year. Net income totaled $3.45 billion, and earnings per share were $2.63, representing a 54% increase compared to $1.71 in fiscal 1996.

Revenues for the quarter ended June 30, 1997 were $3.18 billion, a 41% increase over the comparable quarter in fiscal 1996. For the quarter, net income was $1.06 billion, and earnings per share were $0.80, an increase of 86% compared to the $0.43 earned during the same quarter last year.

" Microsoft completed another year of growth in both revenues and profits led by the success of Microsoft Ò Windows Ò95 and Office applications," said Mike Brown, chief financial officer. "Microsoft has enjoyed two incredible years due to the success of its 32-bit products, however, we continue to expect our revenue growth rates to slow down next year."

" Growth in the Microsoft BackOffice Òset of products continues to be robust," said Paul Maritz, group vice president applications and platforms group. " Windows NT ÒServer shipments doubled once again compared to the same quarter of the preceding year, and revenues for all server products were nearly double those of fiscal 1996."

"Restraining the growth in Microsoft's cost structure boosted profitability significantly in the quarter and fiscal year," noted Bob Herbold, chief operating officer. "Cost of goods sold dropped significantly this year primarily reflecting the continuing shift to lower cost CD-ROM's from traditional disk media. Microsoft now ships approximately 90% of its finished goods products on CD's, and further material reductions in cost of goods sold are unlikely."

During the quarter, Microsoft Corp. invested $1 billion in Comcast Corp., the nation's fourth-largest cable television operator and a diversified telecommunications company. The investment will enhance Comcast's deployment of high-speed data and video services via its cable delivery network. Microsoft also announced the signing of a definitive agreement to acquire WebTV Networks Inc. for $425 million, underscoring the company's strategy to deliver the benefits of the Internet together with emerging forms of digital broadcasting.

Microsoft announced Microsoft Site Server, a new member of the Microsoft BackOffice family of products that makes it easy for organizations to enhance, deploy and manage sophisticated intranet and Internet sites.

In order to help developers take advantage of the convergence of computing and entertainment platforms, Microsoft shipped pre-release versions of the DirectX Ò Foundation version 5.0 which provides the first integrated media platform for developers of entertainment, authoring, network, publishing and real-time communications software. Other major advancements for developers include the virtual machine for Java ™ version 4.0, Digital Equipment Corp. and Hewlett-Packard Co. plans to provide Microsoft's component object model (COM) on Digital and Hewlett-Packard UNIX operating systems, and J/Direct , a new feature of Microsoft's virtual machine for Java for 32-bit versions of the Microsoft Windows operating system that allows developers to call the entire Win32® API directly from Java.

The company recently announced the first products and services based on the W3C privacy standard, endorsed the industry's new specification for HTML, a critical Internet technology, and announced support for HTML version 4.0, which will be provided in its popular Microsoft Internet Explorer web browser. Advancing electronic commerce over the Internet, Microsoft Corp. and First Data Corp. launched MSFDC, a joint-venture company that in early 1998 is scheduled to introduce a service that will enable companies to use the Internet to send bills to, and receive payments from, consumers. In furthering the security of electronic transactions, Microsoft announced it has obtained U.S. government approval for the export of powerful 128-bit encryption to banks worldwide for protection of online financial transactions.

Microsoft also announced the continuation of its stock repurchase program for the coming fiscal year ending June 30, 1998. The company's repurchase program provides shares for issuance to employees under the company's stock option and stock purchase plans. Mike Brown, chief financial officer, noted, "We repurchase shares for issuance under our employee stock plans and because we are long-term investors in Microsoft." Under this program in fiscal 1997, Microsoft repurchased approximately 37 million shares for $3.1 billion.

The number of shares to be purchased during fiscal 1998 will be based on several factors including the level of employee stock option exercises, the price of Microsoft's stock, and market conditions. The number of shares to be repurchased may also vary from the amounts purchased in previous years. Purchases may be made in the open market or in privately negotiated transactions from time to time at management's discretion. Microsoft also expects to continue the sale of warrants and may buy or sell other Microsoft securities in conjunction with the repurchase program, including derivative securities.

This press release contains statements that are forward looking. These statements are based on current expectations that are subject to risks and uncertainties. Actual results will vary because of factors such as PC shipment growth, product ship schedules, life cycles, terms and conditions, product mix, competitive products and pricing, customer demand, technological shifts and other issues discussed in the company's form 10-K.

Founded in 1975, Microsoft (NASDAQ "MSFT" ) is the worldwide leader in software for personal computers. The company offers a wide range of products and services for business and personal use, each designed with the mission of making it easier and more enjoyable for people to take advantage of the full power of personal computing every day.

Microsoft BackOffice, DirectX, Windows, Win32, and Windows NT are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries.

Java is a trademark of Sun Microsystems, Inc.

Other products and company names mentioned herein may be the trademarks of their respective owners.

For More Information, Analysts Only:

Carla Lewis, Senior Director, Investor Relations (425) 936-3703

For More Information, Press Only:

Tom Pilla, Microsoft Corporation, (425) 882-8080

Heidi Rothauser, Waggener Edstrom, (425) 637-9097

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