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Redmond, Washington - October 17, 1995 - 1:30 pm PDT -Driven by demand for Microsoft® Windows® 95, Microsoft Corporation today announced first quarter revenues of $2.02 billion, a 62% increase over the same quarter a year ago. Net income for the quarter equaled $499 million, up from $316 million in the first quarter of fiscal 1995. Earnings per share grew to $0.78, a 53% increase over the corresponding quarter of the prior year. "These excellent results reflect the continuing strength of our overall business and the initial achievements of Windows 95 in North America and Europe, and throughout many parts of the world," noted Bob Herbold, Microsoft's chief operating officer. "Not only has this been a successful quarter financially, but the introduction of Windows 95 has launched our company—and our entire industry—into a new era of personal computing." "We're thrilled with the initial success of Windows 95," said Brad Silverberg, senior vice president, Personal Systems Division. "We estimate seven million customers worldwide have either bought the retail product or purchased a new computer that came with Windows 95 preinstalled. We are even more excited with our high satisfaction numbers: Over 90% of customers are satisfied and said they would buy it again. And now, with the initial surge of product support calls behind us, the average wait time for a call is less than 30 seconds." "The simultaneous launch of Windows 95 and the Microsoft Office for Windows 95 was not only the most successful retail launch in our business," noted Herbold, "but also one of the most successful launches ever of any consumer product in any industry. This is an important milestone because it introduces users to a new generation of personal computing and represents a key achievement in enhancing the Microsoft brand worldwide." "While Windows 95 led the way for many Microsoft success stories this quarter," added Mike Brown, Microsoft's chief financial officer, "we're also extremely pleased with the continuing strength of our financial fundamentals and the performance of products across the company. Demand for our desktop applications products continued at record levels. The BackOffice™ family of products continues to build momentum, with Windows NT revenues up nearly four times over the corresponding quarter in the prior year. Also this quarter, the consumer division has ramped up in anticipation of the holiday season, developing 20 new and upgraded titles that are expected to be in stores by December." On August 24, Microsoft Windows 95 was simultaneously introduced in eight different languages: English, German, French, Danish, Swedish, Italian, Norwegian, and Portuguese. Eight additional languages are now available. Over the next several weeks, the Japanese localized versions will also be released to manufacturing. "Previous Japanese versions of products have taken up to two years to release," noted Silverberg. "But recognizing the growing magnitude of the Japanese market—now Microsoft's second-biggest market—we made the completion of this version a major priority." 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. Item 1. Financial Statements MICROSOFT CORPORATION
MICROSOFT CORPORATION
MICROSOFT CORPORATION
Revenue Revenues for the quarter ended September 30, 1995 were $2,016 million, an increase of 62% over the corresponding quarter of the prior year and 24% over the prior quarter. Business fundamentals remained strong, and products across the Company performed well. Microsoft® Windows® 95 and other operating-system products OEM revenues Revenues from licenses to OEMs (original equipment manufacturers) who preinstall Microsoft products on hardware were a record $548 million, reflecting strong fundamentals in the channel. OEM revenues increased 57% over the corresponding quarter of the prior year and 18% over the prior quarter. Microsoft estimates that approximately 4 million end users purchased new personal computers that run the Company's recently released Microsoft Windows 95 operating system software during the quarter. Windows 95 retail upgrade Revenues for the quarter include Windows 95 retail revenues of $260 million, reflecting strong demand by users of existing PCs for the Company's new operating system. Microsoft estimates that approximately 3 million end users acquired copies of Windows 95 through the Company's retail channels during the quarter. Unearned revenues in the Company's balance sheet also includes approximately $130 million billed in connection with the sale of Windows 95 that will be recognized ratably over the product's life cycle as they are earned. Desktop applications and other products Desktop applications revenues for the quarter were approximately $780 million. Retail upgrade sales of Office for Windows 95 were strong. Fundamental demand by new users for Microsoft Office also continued to be very strong. Unearned revenues in the Company's balance sheet includes approximately $120 million billed in connection with the sale of 16 bit versions of Office that will not be earned and recognized as revenues until related coupons for Office for Windows 95 upgrades have been fulfilled. Consumer, Developer, the BackOffice™ family and other product revenues were also strong for the quarter. Cost of Revenues Cost of revenues was 16.0% of revenues for the quarter. Cost of revenues as a percentage of revenues increased year over year from 14.9% of revenues in the corresponding quarter of the prior year and 14.4% in the prior quarter. This increase is principally attributable to a strong shift in sales mix factors due to shipment of retail upgrade versions of Windows 95 and Office for Windows 95. The increase in the cost of revenues percentage was somewhat offset by the increased mix of CD-ROM media, which carry lower costs of goods sold than floppy disks. If this trend continues, it may reduce cost of revenues as a percentage of revenues in future quarters. Expenses Research and development expense was $302 million for the quarter, growing faster than revenues at 70% year over year. Sales and marketing grew 57% year over year, and 23% sequentially. The August 24th launch of Windows 95 and product support costs contributed to the increase. General and administrative expenses for the quarter were $63 million, down from $86 million the prior quarter. The decrease is primarily due to a number of factors, including lower legal costs and decreased outsourcing. Balance Sheet Cash and short-term investments exceeded $5 billion at September 30, 1995. In anticipation of shipments for the holiday season, inventories grew to $125 million compared with an inventory level of $108 million at September 30, 1994. Accounts receivable increased, primarily because of increased sales of Microsoft Office and the introduction of Windows 95. Resellers of these products were requested to not begin sales to end users until the formal launch on August 24, 1995 with the consequence that the majority of payments on such accounts become due during the December quarter of the current fiscal year. The Company repurchased 1.6 million shares of Microsoft common stock on the open market during the quarter. On September 30, 1995, stockholders' equity was approximately $5.7 billion. Microsoft, BackOffice, and Windows are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries.
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