sec filings - microsoft - 0000891020-95-000029

8/14/2019 SEC Filings - Microsoft - 0000891020-95-000029

1/281

-----BEGIN PRIVACY-ENHANCED MESSAGE-----Proc-Type: 2001,MIC-CLEAROriginator-Name: [email protected]:MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDqpKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ==MIC-Info: RSA-MD5,RSA,qHOtmX1J+Jh3DHfyuj7djjRPy4j9rJyXzxWwa1wA4nbqI0Nq5YUdlNpbwYZc5MxnkNfOKpVPobynFd8LU1rGNw==

0000891020-95-000029.txt : 199505180000891020-95-000029.hdr.sgml : 19950518ACCESSION NUMBER: 0000891020-95-000029CONFORMED SUBMISSION TYPE: S-4/APUBLIC DOCUMENT COUNT: 4

FILED AS OF DATE: 19950217SROS: NASD

FILER:

COMPANY DATA:COMPANY CONFORMED NAME: MICROSOFT CORPCENTRAL INDEX KEY: 0000789019STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED

SOFTWARE [7372]IRS NUMBER: 911144442STATE OF INCORPORATION: DEFISCAL YEAR END: 0630

FILING VALUES:FORM TYPE: S-4/ASEC ACT: 1933 ActSEC FILE NUMBER: 033-57651FILM NUMBER: 95513663

BUSINESS ADDRESS:STREET 1: ONE MICROSOFT WAY #BLDG 8STREET 2: NORTH OFFICE 2211

CITY: REDMONDSTATE: WAZIP: 98052BUSINESS PHONE: 2068828080

MAIL ADDRESS:STREET 1: ONE MICROSOFT WAY - BLDG 8STREET 2: NORTH OFFICE 2211CITY: REDMONDSTATE: WAZIP: 98052-6399


2/281

S-4/A1MICROSOFT/INTUIT AMENDMENT NO. 1 TO FORM S-4

1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON

FEBRUARY 17, 1995.

REGISTRATION NO. 33-57651.- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

------------------------

AMENDMENT

NO. 1

TO

FORM S-4REGISTRATION STATEMENT

UNDERTHE SECURITIES ACT OF 1933

MICROSOFT CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

WASHINGTON 7372 91-1144442

(STATE OR OTHER JURISDICTION (PRIMARY STANDARDINDUSTRIAL (IRS EMPLOYER

OF INCORPORATION OR CLASSIFICATION CODE NUMBER)IDENTIFICATION NO.)

ORGANIZATION)


3/281

ONE MICROSOFT WAYREDMOND, WASHINGTON 98052-6399

(206) 882-8080(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,

INCLUDING AREA CODE,OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

ROBERT A. ESHELMAN, ESQ.MICROSOFT CORPORATIONONE MICROSOFT WAY

REDMOND, WASHINGTON 98052-6399(206) 882-8080

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,INCLUDING AREA CODE,

OF AGENT FOR SERVICE)

WITH COPIES TO:

RICHARD B. DODD, ESQ. GORDON K. DAVIDSON,

ESQ.MARK R. BEATTY, ESQ. EDWIN N. LOWE, ESQ.PRESTON GATES & ELLIS KENNETH A. LINHARES,

ESQ.5000 COLUMBIA CENTER FENWICK & WEST

701 FIFTH AVENUE TWO PALO ALTO SQUARE, STE.

800SEATTLE, WA 98104-7078 PALO ALTO, CA 94306

Approximate date of commencement of proposed sale of the securities to thepublic: At the effective time of the merger of a wholly-owned subsidiary of theregistrant with and into Intuit Inc., which shall occur as soon as practicableafter the effective date of this registration statement and the satisfaction ofthe conditions to the merger.

If the securities being registered on this Form are being offered in

connection with the formation of a holding company and there is compliance withGeneral Instruction G, check the following box: / /

If any of the securities being registered on this Form are being offered ona delayed or continuous basis pursuant to Rule 415 under the Securities Act of1933, check the following box: /X/.

------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATIONSTATEMENT ON SUCH DATE ORDATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTILTHE REGISTRANT SHALL


4/281

FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THATTHIS REGISTRATIONSTATEMENT SHALL THEREAFTER BECOME EFFECTIVE INACCORDANCE WITH SECTION 8(A) OF

THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATIONSTATEMENT SHALL BECOMEEFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANTTO SAID SECTION 8(A),MAY DETERMINE.

- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------

2

CROSS REFERENCE SHEET

ITEM AND CAPTIONIN FORM S-4

CAPTION INPROXY/PROSPECTUS

- -------------------------------------------------------- ------------

-------------------------

Item 1. Forepart of

Registration Statement andOutside Front Cover of

Prospectus........... Outside FrontCover Page

Item 2. Inside Front Cover andOutside Back Cover

Pages ofProspectus.........................Inside Front Cover Page;

AVAILABLE

INFORMATION;Item 3. Risk Factors, Ratio ofEarnings to Fixed

Charges and OtherInformation...............

SUMMARY OF PROXY

STATEMENT/PROSPECTUS;SELECTED

FINANCIAL DATA;

FINANCIAL ANALYSIS

Item 4. Terms of the


5/281

Transaction....................SUMMARY OF PROXY

STATEMENT/PROSPECTUS;

THE MERGER AND

RELATED TRANSACTIONS;DESCRIPTION OF

CAPITAL STOCK;

COMPARISON OF RIGHTS

OF SHAREHOLDERS OFINTUIT AND

MICROSOFT

Item 5. Pro Forma FinancialInformation............. Not

ApplicableItem 6. Material Contacts with

the Company being

Acquired....................................THE MERGER AND

RELATED

TRANSACTIONS --

Background of the

MergerItem 7. Additional Information

Required forReoffering by Persons and

Parties Deemed

Underwriters................................Not Applicable

Item 8. Interests of Named

Experts and Counsel......LEGAL MATTERSItem 9. Disclosure ofCommission Position on

Indemnification forSecurities Act

Liabilities.................................

Not ApplicableItem 10. Information with

Respect to S-3

Registrants.................................


6/281

Not ApplicableItem 11. Incorporation of

Certain Information by

Reference...................................Not Applicable

Item 12. Information withRespect to S-2 or S-3

Registrants.................................

SUMMARY OF PROXY

STATEMENT/PROSPECTUS;SELECTED

FINANCIAL DATA --

Microsoft;

FINANCIAL ANALYSIS --Microsoft

Management's Discussion and

Analysis

of Financial Condition andResults of

Operations; COMPARATIVEMARKET

PRICES; MICROSOFT'S

BUSINESS;

DESCRIPTION OF CAPITALSTOCK;

FINANCIAL STATEMENTSItem 13. Incorporation of

Certain Information byReference...................................

INCORPORATION OFDOCUMENTS BY

REFERENCE

Item 14. Information withRespect to Registrants

other than S-3 or S-2Registrants........... Not

Applicable

Item 15. Information with


7/281

Respect to S-3 Companies... NotApplicable

3

ITEM AND CAPTIONIN FORM S-4

CAPTION INPROXY/PROSPECTUS

- -------------------------------------------------------- ------------

-------------------------

Item 16. Information withRespect to S-2 or S-3

Companies...................................SUMMARY OF PROXY

STATEMENT/PROSPECTUS;

SELECTED

FINANCIAL DATA -- Intuit;FINANCIAL

ANALYSIS -- IntuitManagement's

Discussion and Analysis of

Financial

Condition and Results ofOperations;

COMPARATIVE MARKET

PRICES; INTUIT'S

BUSINESS; THE INTUITSPECIAL

STOCKHOLDERS

MEETING; DESCRIPTION OF

CAPITAL STOCK;FINANCIAL STATEMENTSItem 17. Information withRespect to Companies Other

than S-3 or S-2


8/281

Companies................... NotApplicable

Item 18. Information ifProxies, Consents or

Authorizations are to beSolicited..........

INCORPORATION OFDOCUMENTS BY

REFERENCE; SUMMARY

OF PROXY

STATEMENT/PROSPECTUS; THE INTUIT

SPECIAL STOCKHOLDERS

MEETING; THE

MERGER AND RELATEDTRANSACTIONS;

COMPARISON OF RIGHTS

OF SHAREHOLDERS

OF INTUIT ANDMICROSOFT

Item 19. Information if

Proxies, Consents orAuthorizations are not tobe Solicited or in

an ExchangeOffer........................... Not

Applicable

4(INTUIT LOGO)

155 LINFIELD AVENUEMENLO PARK, CALIFORNIA 94025

FEBRUARY 17, 1995

Dear Intuit Stockholder:

You are cordially invited to attend a Special Meeting of Stockholders of

Intuit Inc. ("Intuit"), which will be held in the VMOVA Conference Room at 75Willow Road, Menlo Park, California 94025, on Monday, April 10, 1995,commencing


9/281

at 8:00 a.m., local time.

At the Special Meeting, you will be asked to consider and vote on aproposal to approve and adopt the Agreement and Plan of Reorganization dated asof October 13, 1994, as amended, (the "Reorganization Agreement") entered intoby Intuit, Microsoft Corporation ("Microsoft") and M/I Acquisition Corporation,a wholly-owned subsidiary of Microsoft ("M/I"), a related Agreement of Mergerbetween Intuit and M/I (collectively with the Reorganization Agreement, the"Merger Agreements") and the merger (the "Merger") of M/I with and into Intuitpursuant to the Merger Agreements.

If the proposed Merger is approved and becomes effective, Intuit willbecome a wholly-owned subsidiary of Microsoft, and (subject to the adjustmentformula described below) each share of Intuit Common Stock, $0.01 par value (an"Intuit Share") that is outstanding at the time of the Merger will be convertedinto 1.336 shares of Microsoft Common Stock, $0.00005 par value ("MicrosoftShares"), and each then-outstanding option to purchase one Intuit Share will beassumed by Microsoft and converted into an option to purchase 1.336 MicrosoftShares. However, if the average closing price at which Microsoft Shares tradeduring the ten trading days ending two days prior to the closing of the Merger(the "Microsoft Average Closing Price") is less than $53.144 per share, then thenumber of Microsoft Shares into which each Intuit Share will be converted in theMerger (and the number of Microsoft Shares that will be purchasable upon the

conversion of each option to purchase one Intuit Share) will be increased from1.336 to the number of Microsoft Shares obtained by dividing $71.00 by theMicrosoft Average Closing Price and rounding to the third decimal point. If theMerger Agreements and the Merger are approved by Intuit's stockholders at theSpecial Meeting, the Merger is expected to be consummated on or about April 11,1995, or as soon thereafter as practicable after satisfaction of all necessaryclosing conditions.

After the Merger occurs, I will serve as Microsoft's Executive VicePresident of Electronic Commerce, and William Campbell, Intuit's current Chief

Executive Officer, will continue to serve in that position and as a Senior VicePresident of Microsoft, and William H. Harris, Jr., an Intuit Executive VicePresident, will serve as a Vice President of Microsoft. Most of the members ofIntuit's current executive management team are expected to continue as officersof Intuit following the Merger. The combination of Intuit with Microsoft willenable Intuit to accelerate its efforts to fundamentally change the way thatindividuals and small businesses handle their financial affairs.

After careful consideration, your Board of Directors has unanimouslyapproved the Merger Agreements, the Merger and the transactions provided for bythe Merger Agreements and has concluded that they are in the best interests ofIntuit and its stockholders. Your Board of Directors unanimously recommends a

vote in favor of the Merger.


10/281

In the material accompanying this letter, you will find a Notice of SpecialMeeting of Stockholders, a Proxy Statement/Prospectus relating to the actions tobe taken by Intuit stockholders at the Special Meeting

5

and a proxy. The Proxy Statement/Prospectus more fully describes the proposedMerger and includes information about Intuit and Microsoft. Please read itcarefully.

We hope that you will be able to attend the Special Meeting in person.However, whether or not you plan to attend the Special Meeting, please complete,sign, date and return your proxy in the enclosed envelope. If you attend theSpecial Meeting, you may vote in person if you wish, even though you havepreviously returned your proxy. It is important that your shares be representedand voted at the Special Meeting.

Sincerely,

/s/ SCOTT D. COOK---------------------Scott D. CookChairman of the Board

6(INTUIT LOGO)

155 LINFIELD AVENUEMENLO PARK, CALIFORNIA 94025

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Our Stockholders:

A Special Meeting of Stockholders of Intuit Inc., a Delaware corporation

("Intuit"), will be held at 8 a.m., local time, on Monday, April 10, 1995 atIntuit's offices in the VMOVA Conference Room at 75 Willow Road, Menlo Park,California 94025 (the "Special Meeting"), for the following purposes:

1. To consider and vote upon a proposal to approve: (a) the Agreementand Plan of Reorganization dated October 13, 1994, as amended, (the"Reorganization Agreement") entered into by Intuit, Microsoft Corporation,a Washington corporation ("Microsoft"), and M/I Acquisition Corporation, aWashington corporation that is a wholly-owned subsidiary of Microsoft("M/I"), and the related Agreement of Merger (together with theReorganization Agreement, the "Merger Agreements") to be entered intobetween Intuit and M/I, and (b) the merger (the "Merger") of M/I with andinto Intuit pursuant to the Merger Agreements, whereby, among other things,Intuit will survive the Merger and become a wholly-owned subsidiary of

Microsoft, each outstanding share of Intuit Common Stock, $0.01 par value


11/281

(an "Intuit Share"), will be converted into no fewer than 1.336 shares ofMicrosoft Common Stock, par value $0.00005 per share ("Microsoft Shares"),and Microsoft will assume all outstanding options to purchase IntuitShares, which options will be converted into options to purchase Microsoft

Shares at the same conversion ratio at which Intuit Shares will beconverted into Microsoft Shares in the Merger.

2. To transact such other business as may properly come before theSpecial Meeting or any adjournment thereof.

The above proposal is more fully described in the ProxyStatement/Prospectus accompanying this Notice.

Only holders of record of Intuit Shares at the close of business onFebruary 10, 1995 are entitled to notice of, and will be entitled to vote at,the Special Meeting or any adjournment thereof. Approval of the MergerAgreements and the Merger will require the affirmative vote of the holders of amajority of the outstanding Intuit Shares entitled to vote thereon.

BY ORDER OF THE BOARD OF DIRECTORS(facsimile signature)William H. Lane III, Secretary

Menlo Park, CaliforniaFebruary 17, 1995

TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THESPECIAL MEETING, YOU AREURGED TO COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY ANDMAIL IT PROMPTLY IN THEPOSTAGE PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLANTO ATTEND THE SPECIALMEETING IN PERSON. YOUR PROXY CAN BE REVOKED ANDWITHDRAWN BY YOU AT ANY TIMEBEFORE IT IS VOTED.

7

MICROSOFT CORPORATION

PROSPECTUS

------------------------

INTUIT INC.

PROXY STATEMENTFOR

SPECIAL MEETING OF STOCKHOLDERS


12/281

TO BE HELD MONDAY, APRIL 10, 1995

This Proxy Statement/Prospectus constitutes the proxy statement of IntuitInc. ("Intuit") relating to the solicitation of proxies for use at the SpecialMeeting of Stockholders of Intuit (the "Special Meeting") scheduled to be heldat 8:00 a.m. on Monday, April 10, 1995, and any adjournment thereof and theprospectus of Microsoft Corporation ("Microsoft") relating to shares ofMicrosoft common stock, par value $.00005 per share (the "Microsoft Shares")that will be issued in connection with the merger (the "Merger") of M/IAcquisition Corporation, a wholly-owned subsidiary of Microsoft ("M/I"), withand into Intuit. The Merger will be effected pursuant to an Agreement and Planof Reorganization, as amended, (the "Reorganization Agreement") dated as ofOctober 13, 1994 by and among Microsoft, M/I, and Intuit. Microsoft has filed aregistration statement with the Securities and Exchange Commission (the"Commission") with respect to the issuance of the Microsoft Shares.

No person has been authorized to give any information or to make anyrepresentation other than those contained in this Proxy Statement/Prospectus inconnection with the solicitations of proxies or the offering of securities madeby this Proxy Statement/Prospectus and, if given or made, such information orrepresentations must not be relied upon as having been authorized by Microsoftor Intuit. Neither the delivery of this Proxy Statement/Prospectus nor anydistribution of securities made hereunder shall under any circumstances create

any implication that there has been no change in the information set forthherein since the date of this Proxy Statement/Prospectus. This ProxyStatement/Prospectus does not constitute an offer to sell, or a solicitation ofan offer to buy, any securities, or the solicitation of a proxy, by anyone inany jurisdiction in which such offer or solicitation is not authorized or inwhich the person making such offer or solicitation is not qualified to do so orto anyone to whom it is unlawful to make such offer or solicitation.

NEITHER THE MERGER NOR THESE SECURITIES HAVE BEENAPPROVED OR DISAPPROVEDBY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE

SECURITIES COMMISSION NORHAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATESECURITIES COMMISSIONPASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXYSTATEMENT/PROSPECTUS. ANYREPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Proxy Statement/Prospectus is February 17, 1995.

8

AVAILABLE INFORMATION


13/281


14/281

4. Microsoft's Quarterly Report on Form 10-Q for the quarter endedDecember 31, 1994;

5. Intuit's Annual Report on Form 10-K, as amended by Amendment No. 1thereto on Form 10-K/A, for the ten-month transition period ended July 31,1994;

6. Intuit's Quarterly Report on Form 10-Q for the quarter endedOctober 31, 1994; and

7. Intuit's Report on Form 8-K dated September 27, 1994, as amendedby Amendment No. 1 thereto on Form 8-K/A dated December 8, 1994.

All documents and reports subsequently filed by Microsoft and Intuitpursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the dateof this Proxy Statement/Prospectus and prior to the date of the Special Meetingshall be deemed to be incorporated by reference in this ProxyStatement/Prospectus and to be a part hereof from the date of filing of suchdocuments or reports. Any statement contained in a document incorporated ordeemed to be incorporated by reference herein shall be deemed to be modified or

superseded for purposes of this Proxy Statement/Prospectus to the extent that astatement contained herein or in any other subsequently filed document whichalso is or is deemed to be incorporated by reference herein modifies orsupersedes such statement. Any such statement so modified or superseded shallnot be deemed, except as so modified or superseded, to constitute a part of thisProxy Statement/Prospectus.

ii9

This Proxy Statement/Prospectus incorporates documents by reference whichare not presented herein or delivered herewith. Such documents (other thanexhibits to such documents unless such exhibits are specifically incorporated byreference herein) are available to any person, including any beneficial owner,to whom this Proxy Statement/Prospectus is delivered, on written or oralrequest, without charge, in the case of documents relating to Microsoft,directed to Microsoft Corporation, One Microsoft Way, Redmond, WA 98052(telephone number (206) 882-8080), Attention: David Corning; or in the case ofdocuments relating to Intuit, directed to Intuit Inc., 66 Willow Place, MenloPark, CA 94025 (telephone number (415) 329-3555), Attention: William H. LaneIII. In order to ensure timely delivery of the documents, any requests should bemade by March 27, 1995.


15/281

iii10

TABLE OF CONTENTS

PAGE----

SUMMARY OF PROXY

STATEMENT/PROSPECTUS.................................................1

SELECTED FINANCIALDATA............................................................... 8

Microsoft........................................................................... 8Intuit.............................................................................. 8

COMPARATIVE MARKETPRICES............................................................. 9

FINANCIALANALYSIS.................................................................... 9

Microsoft Management's Discussion and Analysis ofFinancial Condition and Results of

Operations.......................................................................9

Intuit Management's Discussion and Analysis of Financial

Condition and Results ofOperations.......................................................................

15THE INTUIT SPECIAL STOCKHOLDERSMEETING............................................... 25

Date, Time and Place ofMeeting..................................................... 25

Record Date and OutstandingShares.................................................. 25

Voting of Proxies...................................................................25

Vote Required and Voting Intentions of CertainStockholders......................... 25Solicitation of Proxies and

Expenses................................................ 26THE MERGER AND RELATED

TRANSACTIONS................................................... 26General............................................................................. 26

Background of theMerger............................................................ 27

Intuit's Reasons for theMerger..................................................... 29

Board

Recommendation................................................................


16/281

30Opinion of Financial

Advisor........................................................ 30Interests of Certain Persons in the

Merger.......................................... 34Related

Agreements.................................................................. 35Representations and

Covenants....................................................... 36Conditions to the

Merger............................................................ 37Termination or

Amendment............................................................ 38Certain U.S. Federal Income Tax

Matters............................................. 39Accounting

Treatment................................................................ 41Regulatory

Requirements............................................................. 41Surrender of Certificates; Lost

Certificates........................................ 42Affiliates' Restrictions on Sale of Intuit

Shares................................... 42No Dissenters' Rights...............................................................

43Merger Expenses and

Fees............................................................ 43

MICROSOFT'SBUSINESS.................................................................. 43

General............................................................................. 43Products............................................................................ 44Localization........................................................................

48Marketing and

Distribution.......................................................... 48Finished Goods

Channels............................................................. 48Product Support.....................................................................

49Customers...........................................................................50

ProductDevelopment................................................................. 50Competition.........................................................................

50Product Protection..................................................................

51Manufacturing.......................................................................

51Employees...........................................................................

51


17/281

Properties..........................................................................51

Legal Proceedings...................................................................52

iv11

PAGE

----

INTUIT'SBUSINESS..................................................................... 53Background..........................................................................

53Products............................................................................

54Product Development and

Marketing................................................... 57Sales and

Distribution.............................................................. 59International.......................................................................

61

Customer Service and TechnicalSupport.............................................. 61

Seasonality; Quarterly Fluctuations inRevenue...................................... 61

Competition.........................................................................62

Proprietary Rights..................................................................64

Manufacturing andShipping.......................................................... 64

Employees...........................................................................

64Acquisition of Parsons Technology,Inc.............................................. 65

Management ofGrowth................................................................ 65

Properties..........................................................................65

LegalProceedings................................................................... 66

DESCRIPTION OF CAPITALSTOCK.......................................................... 67

Microsoft...........................................................................


18/281

67Intuit.............................................................................. 67COMPARISON OF RIGHTS OF SHAREHOLDERS OF

INTUIT AND MICROSOFT.......................... 68

Amendment to Certificate/Articles ofIncorporation.................................. 68

Right to Call Special Meeting ofShareholders....................................... 68Anti-Takeover Provisions and Interested

Stockholder................................. 69Mergers, Sales of Assets and Other

Transactions..................................... 70Transactions With Officers or

Directors............................................. 71Appraisal or Dissenters'

Rights..................................................... 71Dividends...........................................................................

72Limitation of Liability and Indemnification of Officers

and Directors............... 72LEGAL

MATTERS.........................................................................73

EXPERTS...............................................................................73

INDEX TO MICROSOFT FINANCIALSTATEMENTS............................................... F-1

INDEX TO INTUIT FINANCIALSTATEMENTS.................................................. F-16

LIST OF ANNEXES

Annex A Agreement and Plan of Reorganization

Annex B Opinion of Morgan Stanley & Co. Incorporated

v

12

INDEX OF SIGNIFICANT DEFINED TERMS

TERMPAGE DEFINED

- --------------------------------- ------------

A/P..............................

54


19/281

AcquiringPerson................. 70

AcquisitionTransaction.......... 37

Affiliates.......................35

AffiliatesAgreements............ 35Best.............................

16Certificate Transmittal

Form..... 42CheckFree........................

57ChipSoft.........................

15Closing..........................

35Code.............................

39Commission.......................

iiConsumer Software

Comparables.... 32Department of

Justice............ 41DGCL.............................

68Effective Time...................

3Exchange

Act..................... iiExchange

Agent................... 42Exchange

Ratio................... 3FTC..............................

41

HSR Act..........................41Intuit...........................

iIntuit Option....................

3Intuit Shares....................

2M/I..............................

i

TERM


20/281

PAGE DEFINED- ---------------------------

------ ------------

Merger...........................i

MergerAgreements................

1Microsoft........................

iMicrosoft

Articles............... 68Microsoft Average

ClosingPrice..........................

3Microsoft PreferredShares....... 67

MicrosoftSecurities............. 67

MicrosoftShares................. i

MorganStanley................... 2Novell...........................

4

NPC..............................16

OEM..............................10

Parsons..........................16

Personal Finance SoftwareBusiness.......................

38Productivity Software

Comparables....................

32Record Date......................1

RegistrationStatement........... ii

Reorganization...................40

ReorganizationAgreement......... i

Securities Act...................35

Special

Meeting.................. 1


21/281

StockholderAgreements........... 35Tax Opinions.....................

40

WBCA.............................67

vi13

SUMMARY OF PROXY STATEMENT/PROSPECTUS

The following is a summary of certain information contained elsewhere inthis Proxy Statement/ Prospectus. This summary is not, and is not intended to

be, complete in itself. Reference is made to, and this summary is qualified inits entirety by, the more detailed information contained in this ProxyStatement/ Prospectus and the attached Annexes, which stockholders of Intuit areencouraged to review. Unless otherwise defined in this summary, capitalizedterms used in this summary are defined elsewhere in this ProxyStatement/Prospectus.

INTRODUCTION............... The Board of Directors of Intuit has unanimouslyapproved and adopted the Reorganization Agreement,pursuant to which M/I will be merged with and intoIntuit, if the stockholders of Intuit adopt theMerger by the requisite vote and certain other

conditions are satisfied. Intuit will be thesurviving corporation in the Merger as awholly-owned subsidiary of Microsoft. A copy of theReorganization Agreement is attached hereto asAnnex A and incorporated herein by reference.

THE COMPANIES

Microsoft Corporation Microsoft develops, manufactures, markets,One Microsoft Way licenses, and supports a wide range of softwareRedmond, Washington 98052 products, including operating systems for personal

(206) 882-8080 computers (PCs), workstations, and servers;business and consumer programs for productivity,reference, education, and entertainment; andsoftware development tools. Microsoft also marketspersonal computer books and hardware, and isengaged in the research and potential developmentof advanced technology software products. See"MICROSOFT'S BUSINESS."

Intuit Inc. Intuit develops, manufactures, markets, and155 Linfield Avenue supports software products that enable householdsMenlo Park, CA 94025 and small businesses to automate commonly performed


22/281

(415) 329-2785 financial tasks, and markets and sells suppliesdesigned for use with Intuit's software products,including checks, invoices and forms. See "INTUIT'SBUSINESS."

M/I Acquisition Corporation M/I is a wholly-owned subsidiary of MicrosoftOne Microsoft Way formed solely for the purpose of the Merger and hasRedmond, Washington 98052 conducted no business.

THE INTUIT SPECIALSTOCKHOLDERS MEETING....... A special meeting of stockholders of Intuit (the

"Special Meeting") will be held on Monday, April10, 1995, at 8:00 a.m. local time in the VMOVAConference Room at 75 Willow Road, Menlo Park,California 94025. Stockholders of record of Intuitat the close of business on February 10, 1995 (the"Record Date") are entitled to notice of and tovote at the Special Meeting. See "THE INTUITSPECIAL STOCKHOLDERS MEETING."

Purpose of the Meeting... At the Special Meeting, Intuit stockholders willconsider and vote upon a proposal to approve theReorganization Agreement, a related Agreement ofMerger between Intuit and M/I (collectively, with

the Reorganization Agreement, the "MergerAgreements"), and the Merger. See "THE MERGER ANDRELATED TRANSACTIONS."

Vote Required............ Approval of the Merger Agreements and the Mergerwill require the affirmative vote of the holders ofa majority of the outstanding Intuit common stock,par value $.01 (each an "Intuit Share" andcollectively

1

14

the "Intuit Shares"), entitled to vote. See "THEINTUIT SPECIAL STOCKHOLDERS MEETING -- VoteRequired."

BACKGROUND AND REASONS FORTHE MERGER; RECOMMENDATIONOF THE BOARD OFDIRECTORS................ The Board of Directors of Intuit has unanimously

approved the Reorganization Agreement and theMerger, and has determined that the Merger is fair

to and in the best interests of Intuit and its


23/281


24/281

the Merger. Upon consummation of the Merger, Intuitwill become a wholly-owned subsidiary of Microsoft.The Board of Directors and executive officers ofMicrosoft are not expected to change upon

consummation of the Merger, except that Scott D.Cook, Intuit's Chairman, will become an ExecutiveVice President of Microsoft responsible for thedevelopment of Microsoft's products and strategicdevelopment relating to Electronic Commerce,Intuit's President and Chief Executive Officer,William V. Campbell, will become a Senior

215

Vice President of Microsoft, as well as continuingas chief executive officer of Intuit and will beresponsible for Financial Products, a new divisionof Microsoft which will include the business ofIntuit, and William H. Harris, Jr., an ExecutiveVice President of Intuit, will become a VicePresident of Microsoft. Most of the executiveofficers of Intuit are expected to continue asofficers of Intuit following the Merger. If theMerger is approved and consummated, thestockholders of Intuit will become shareholders ofMicrosoft (as described below), and their rights

will be governed by Microsoft's Articles ofIncorporation and Bylaws. See "COMPARISON OF RIGHTSOF SHAREHOLDERS OF INTUIT AND MICROSOFT."

Conversion of Shares..... Upon the consummation of the Merger (the "EffectiveTime"), each Intuit Share then issued andoutstanding will cease to be outstanding and willbe automatically converted into 1.336 MicrosoftShares (the "Exchange Ratio"), subject to apotential upward adjustment, as described below.Cash will be paid in lieu of issuing fractional

shares. However, if the average closing price atwhich Microsoft Shares trade during the ten tradingdays ending two trading days prior to the closingof the Merger (the "Microsoft Average ClosingPrice") is less than $53.144 per share, then theExchange Ratio will be increased from 1.336 to anadjusted Exchange Ratio obtained by dividing $71.00by the Microsoft Average Closing Price and roundingto the third decimal point. Based upon thecapitalization of Intuit and Microsoft as ofFebruary 7, 1995, and assuming each Intuit Share isconverted into 1.336 Microsoft Shares, stockholders

of Intuit will own Microsoft Shares representing


25/281


26/281

INTUIT OR MICROSOFT AND SHOULD NOT BERETURNED WITH

THE ENCLOSED PROXY. See "THE MERGER ANDRELATED

TRANSACTIONS -- Surrender of Certificates; LostCertificates."

Stockholder Agreements... Certain stockholders of Intuit have agreed withMicrosoft that until the consummation of the Mergeror the termination of the Reorganization Agreementin accordance with its terms, they will (i) votetheir Intuit Shares in favor of the Merger andagainst any proposal made in opposition to or incompetition with the Merger; and (ii) not solicitor encourage any offers competitive to the Merger.These agreements were entered into by tenstockholders of Intuit, including three directors,who on the Record Date together owned beneficially7,549,560 Intuit Shares (approximately 37% of theIntuit Shares then outstanding). See "THE MERGERAND RELATED TRANSACTIONS -- Related Agreements."

Employment Agreements.... Scott D. Cook, William V. Campbell, Mari Baker,Eric C.W. Dunn, Mark R. Goines, William H. Harris,Jr., James J. Heeger, William H. Lane III, JohnMonson, Stephen D. Pelletier, William C. Shepard,and William L. Strauss have entered into employment

and noncompetition agreements with Microsoft. See"THE MERGER AND RELATED TRANSACTIONS -- RelatedAgreements."

Affiliates Agreements.... Certain officers, directors and stockholders ofIntuit have entered into agreements with Microsoftwhereby they agreed not to sell, exchange,transfer, or otherwise reduce their risk orownership of Intuit Shares during the time periodrequired by the pooling of interests method ofaccounting and to limit their sales of Microsoft

Shares following the Merger in order to comply withRule 145 of the Commission. See "THE MERGER ANDRELATED TRANSACTIONS -- Related Agreements."

Agreement with Novell.... Microsoft has entered into an agreement (the "MoneyAgreement") with Novell, Inc. ("Novell"), dated asof October 12, 1994, pursuant to which, and subjectto the closing of the Reorganization Agreement,Microsoft has agreed to sell, transfer, convey andassign to Novell all right, title and interest inand to its Microsoft Money software business,including product code and documentation, related

technology, relevant trademarks and marketing


27/281

materials, together with various licenses and othercontracts related to that business.

Representations and

Covenants............. Under the Reorganization Agreement, Intuit andMicrosoft made a number of representationsregarding their respective capital structures,their financial condition and other matters,including their authority to enter into theReorganization Agreement and to consummate theMerger. Intuit agreed that, until the consummationof the Merger or the termination of theReorganization Agreement, it will maintain itsbusi-

417

ness, it will not take certain actions outside theordinary course without Microsoft's consent and itwill use its best efforts to consummate the Merger.Intuit has agreed not to initiate, solicit, orfacilitate any proposals that compete with theMerger, except that Intuit will not be preventedfrom taking such actions if Intuit's directorsdetermine in good faith after consultation withlegal counsel that their fiduciary duties so

require. Microsoft has agreed to use its bestefforts to consummate the Merger and has made acommitment to Intuit that, if the Merger isconsummated, benefits will be provided to Intuitemployees that are in the aggregate substantiallyequivalent to the benefits provided to Microsoftemployees and credit will be given for priorservice as if such Intuit employees had beenemployed by Microsoft for the period for which theywere employed by Intuit. Microsoft has agreed thatit will use its best efforts to maintain Intuit's

operations in the general areas of Menlo Park andSan Diego, California for a period of approximatelytwo years and has agreed to provide certainseverance payments to any Intuit employee whoseemployment is terminated without cause within oneyear of the Merger. Microsoft also has agreed, ifthe Merger is consummated, that all rights toindemnification (including advancement of expenses)of present or former officers and directors ofIntuit regarding actions taken prior toconsummation of the Merger as provided in Intuit'sCertificate of Incorporation or Bylaws and

indemnification agreements will survive the Merger


28/281

and remain in effect for six years and will beguaranteed by Microsoft. See "THE MERGER ANDRELATED TRANSACTIONS -- Representations andCovenants."

Conditions............... The obligations of Microsoft and Intuit toconsummate the Merger are subject to thesatisfaction of certain conditions, any or all ofwhich may be waived, including (i) the approval ofIntuit's stockholders; (ii) obtaining of allrequired government consents, including expirationor termination of the applicable waiting periodunder the Hart-Scott-Rodino Antitrust ImprovementsAct of 1976, as amended (the "HSR Act"); (iii) theabsence of any statute, rule, regulation, order,decree or injunction prohibiting the Merger; (iv)the absence of any governmental legal actionchallenging or seeking to restrain the Merger,seeking any material damages, or seeking toprohibit or impose any material limitations on theownership or operation of, or compel thedisposition of, Microsoft's or Intuit's personalfinance software business. Other conditions includethe accuracy of the other party's representations,the other party's performance of its covenants, andfavorable legal opinions (including an opinion tothe effect that the Merger will be treated for

federal income tax purposes as a tax-freereorganization). See "THE MERGER AND RELATEDTRANSACTIONS -- Conditions to the Merger" and"INTUIT'S BUSINESS -- Legal Proceedings."

Termination.............. The Reorganization Agreement may be terminated by

the mutual agreement of the parties or by eitherparty (i) as a result of a breach of arepresentation, warranty, covenant or agreement bythe other party which has a material adverse effect

on the business of Intuit or Microsoft and suchbreach has not been cured, or best efforts are notbeing employed to cure such breach, within 10 daysafter notice of such breach is given; (ii) if theMerger has not been consummated before May 30,1995, subject to extension until August 29, 1995 ifIntuit and Microsoft agree to pursue litigationagainst any administrative or judicial action or

518


29/281

proceeding challenging the Merger as violative ofany antitrust law; (iii) if Intuit stockholdershave voted on but not approved the Merger; or (iv)if any permanent injunction preventing the Merger

shall have become final and non-appealable. See"THE MERGER AND RELATED TRANSACTIONS --

Terminationor Amendment."

Termination Fee.......... The Reorganization Agreement also provides that, ifMicrosoft is not then in material breach of theReorganization Agreement, Intuit shall payMicrosoft a termination fee of $15 million if (i)Intuit's Board of Directors shall have withdrawn ormodified, in a manner adverse to Microsoft, theBoard's approval or recommendation of the Merger;(ii) Intuit or its affiliates breach Intuit'scovenant not to initiate, solicit or facilitate anyproposal that competes with the Merger other thanin the exercise of the fiduciary duties of theBoard of Directors of Intuit; (iii) Microsoftterminates the Reorganization Agreement following amaterial breach by Intuit of its representations,warranties, covenants or agreements; or (iv) ifIntuit shall agree with any person other thanMicrosoft to an agreement which results in a 50% ormore change in the voting power of beneficial

owners of Intuit before, or within six monthsafter, termination of the Reorganization Agreement.See "THE MERGER AND RELATED TRANSACTIONS --Termination or Amendment."

Amendment................ The Reorganization Agreement may be amended byMicrosoft and Intuit at any time before or afterapproval of the Intuit stockholders, except that,after stockholder approval, no amendment may bemade which by law requires the further approval ofthe Intuit stockholders without obtaining such

approval. See "THE MERGER AND RELATEDTRANSACTIONS -- Termination or Amendment."

No Dissenters' orAppraisal Rights....... Stockholders of Intuit who dissent from the Merger

will not be entitled to rights of appraisal underSection 262 of the Delaware General CorporationLaw. See "THE MERGER AND RELATED TRANSACTIONS --

NoDissenters' Rights;" and "COMPARISON OF RIGHTS OFSHAREHOLDERS OF INTUIT AND MICROSOFT -- Appraisalor Dissenters' Rights."


30/281

Certain U.S. FederalIncome Tax Matters..... The Merger is expected to be a tax-free

reorganization for federal income tax purposes, sothat no gain or loss will be recognized by Intuit

stockholders on the exchange of Intuit Shares forMicrosoft Shares, except to the extent that Intuitstockholders receive cash in the exchange (i.e.,cash in lieu of fractional shares) as more fullydescribed in "THE MERGER AND RELATEDTRANSACTIONS -- Certain Federal Income TaxMatters." Intuit stockholders are urged to consulttheir own tax advisors regarding such taxconsequences.

Accounting Treatment..... The Merger is expected to be treated as a poolingof interests for accounting purposes. It is acondition to the obligation of Microsoft toconsummate the Merger that Microsoft receive aletter from Intuit's independent auditor, Ernst &Young LLP, addressed to Intuit, to the effect thatthe Merger will qualify for pooling of interestaccounting treatment (without regard to any actionor conduct of Microsoft). See

619

"THE MERGER AND RELATEDTRANSACTIONS -- Accounting Treatment."

EFFECT OF NONAPPROVAL...... If Intuit is unable to obtain approval by its

stockholders before May 30, 1995 (or August 29,1995 if Microsoft and Intuit have mutually agreedto pursue litigation against any action challengingthe Merger as violative of antitrust laws), eitherIntuit or Microsoft may terminate theReorganization Agreement. See "THE MERGER AND

RELATED TRANSACTIONS -- Termination or Amendment."

MARKET PRICE DATA.......... At October 12, 1994, the last full trading daybefore announcement of the Merger, the closingprices of Microsoft and Intuit were $56.25 and$47.00, respectively. On February 7, 1995, theclosing prices were $61.00 for Microsoft and $66.00for Intuit. As of February 7, 1995, there were 670stockholders of record who held Intuit Shares(although Intuit has been informed that there arein excess of 7,845 beneficial owners), as shown on

the records of Intuit's transfer agent for such


31/281

shares. Neither Intuit nor Microsoft has in thepast paid cash dividends on its stock. See"COMPARATIVE MARKET PRICES."

720

SELECTED FINANCIAL DATA

The following tables set forth selected financial data for Microsoft for

the five fiscal years ended June 30, 1994 and the six months ended December 31,1993 and 1994 and for Intuit for the four fiscal years ended September 30, 1993,the ten months ended July 31, 1994, and the three months ended October 31, 1993and 1994. Effective August 1, 1994, Intuit changed its fiscal year end to July31 from September 30. The selected financial data for Microsoft for the fivefiscal years ended June 30, 1994 have been derived from financial statementsaudited by Deloitte & Touche LLP. The selected financial data for Intuit for thefour fiscal years ended September 30, 1993 and the ten months ended July 31,1994 have been derived from Intuit's financial statements audited by Ernst &Young LLP. The selected financial data for Microsoft for the six months endedDecember 31, 1993 and 1994 have been derived from unaudited financial statementsof Microsoft and include, in the opinion of management of Microsoft, alladjustments (consisting of normal recurring adjustments) necessary to presentfairly the results for such periods. The selected financial data for Intuit forthe three months ended October 31, 1993 and 1994 have been derived fromunaudited financial statements of Intuit and include, in the opinion of

management of Intuit, all adjustments (consisting of normal recurringadjustments) necessary to present fairly the results for such periods. Theselected financial data should be read in conjunction with the separatefinancial statements and notes thereto of Microsoft and Intuit. See "FINANCIALSTATEMENTS." This historical data are not necessarily indicative of the resultsto be expected if the Merger is consummated.

MICROSOFT(In millions, except earnings per share)

SIX MONTHS ENDED

YEAR ENDEDJUNE 30

DECEMBER 31(1)-------------------------------

------------------- ---------


32/281

----------

1990 1991 19921993 1994 1993

1994------ ------ ------ ------ ------ ------ -----

-

Netrevenues..................................

$1,183 $1,843 $2,759$3,753 $4,649 $2,112

$2,729Net

income....................................279 463 708

953 1,146 528689

Earnings pershare............................0.52 0.82 1.20

1.57 1.88 0.871.10

Cash and short-term

investments............... 449686 1,345 2,290

3,614 -- 3,839Total

assets..................................1,105 1,644 2,6403,805 5,363 --

5,961Stockholders'

equity..........................919 1,351 2,193

3,242 4,450 --4,443

- ---------------

(1) Unaudited.

INTUIT(In millions, except earnings per share)


33/281

THREE MONTHS

TENMONTHS ENDED

YEAR ENDED

SEPTEMBER 30ENDED OCTOBER 31(1)----------------------------------

- JULY 31 ----------------

1990 1991 1992 1993

1994 1993 1994----- ----- ----- -----

---------- ----- ------

Netrevenues......................................$ 33 $ 45 $ 84 $ 121

$ 194 $ 47 $ 68Charge for purchased research

and development..... -- ---- -- 151 --

44Net income

(loss)................................. 44 5 8 (176)

7 (54)Earnings (loss) per

share......................... 0.36

0.42 0.50 0.74(10.43) 0.61 (2.73)Cash and short-term

investments................... 47 9 40 84

-- 34Total

assets......................................13 19 32 83

245 -- 267Stockholders'

equity.............................. 8

12 17 49 186


34/281

-- 169

- ---------------

(1) Unaudited.

821

COMPARATIVE MARKET PRICES

The following table sets forth the high and low sales prices of Microsoftand Intuit Shares, traded as "national market securities" on The Nasdaq StockMarket under the symbols MSFT and INTU, respectively, for the periods indicated.

The quotations are as reported in published financial sources.

MICROSOFT

INTUIT

-------------------- -------------------

HIGH LOW

HIGH LOW

-------- ------- --------------

Calendar 1992Third

Quarter....................................$ 41.00 $32.75 *

*

FourthQuarter...................................$ 47.50 $37.875 *

*

Calendar 1993First

Quarter*...................................$ 47.125 $38.375 $31.75

$27.75Second

Quarter...................................


35/281

$ 49.00 $39.875 $33.50$24.25

ThirdQuarter....................................

$ 44.25 $35.125 $37.75$28.25

FourthQuarter...................................$ 43.25 $38.00 $46.00

$33.00

Calendar 1994First

Quarter....................................$ 44.625 $39.00$48.625 $36.375

SecondQuarter...................................$ 54.625 $41.00 $36.50

$27.25Third

Quarter....................................$ 59.25 $46.875 $44.25

$33.50Fourth

Quarter...................................$ 65.125 $53.875

$70.5625 $40.75

Calendar 1995First Quarter (through

February 7, 1995)......... $65.25 $58.25 $70.25

$65.00

- ---------------

* Intuit Shares began trading on March 12, 1993, the date of Intuit's initialpublic offering.

On October 12, 1994, the last full trading day before announcement of theMerger, the closing prices of Microsoft and Intuit were $56.25 and $47.00,respectively. On February 7, 1995, the closing prices were $61.00 for Microsoftand $66.00 for Intuit. As of February 7, 1995, there were 670 stockholders ofrecord who held Intuit Shares (although Intuit has been informed that there arein excess of 7,845 beneficial owners), as shown on the records of Intuit'stransfer agent for such shares. Neither Intuit nor Microsoft in the past haspaid cash dividends on its stock.


36/281

FINANCIAL ANALYSIS

MICROSOFT MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND

RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED JUNE 30,1992, 1993 AND1994

Microsoft develops, manufactures, markets, licenses, and supports a widerange of software products, including operating systems for personal computers(PCs), workstations, and servers; business and consumer programs forproductivity, reference, education, and entertainment; and software developmenttools. Microsoft also markets personal computer books and hardware, and isengaged in the research and potential development of advanced technologysoftware products.

Net Revenues

1992 CHANGE 1993

CHANGE 1994------ ------ ------ ----

-- ------

Netrevenues...................................$2,759 36% $3,753

24% $4,649

Software license volume (as opposed to price) increases have been theprincipal factor in Microsoft's revenue growth. The average selling price per

license has decreased, primarily because of general shifts in sales mix fromretail packaged products to licensing programs, from new products to productupgrades, and from stand-alone desktop applications programs to the MicrosoftOffice(R) integrated suite. Average revenue per

922

license from original equipment manufacturer ("OEM") licenses and corporatelicense programs (such as Microsoft Select) is lower than average revenue perlicense from retail versions. Likewise, product upgrades have lower prices thannew products. The price of Microsoft Office is less than the sum of the prices


37/281

for the individual application programs included in this product when suchprograms are sold separately.

Product groups. Operating systems product group revenues were $1,104

million, $1,267 million, and $1,519 million in 1992, 1993, and 1994. TheMS-DOS(R) operating system is preinstalled on PCs by most OEMs, and revenuesfrom such licenses increased steadily in both 1993 and 1994. Revenues fromretail upgrade versions of MS-DOS decreased in 1994 after a strong increase in1993. The MS-DOS 6 retail upgrade was released in 1993. No major upgrades ofMS-DOS were released in 1994. The Microsoft Windows(R) operating system wasanincreasingly strong contributor to systems revenues as the number of new PCspreinstalled with Windows increased rapidly during the three-year period.

Applications product group revenues were $1,401 million, $2,253 million,and $2,927 million in 1992, 1993, and 1994. Increases in applications revenueswere led by strong sales of Microsoft Office. The Microsoft Office Standardproduct includes Microsoft Excel, Microsoft Word, the Microsoft PowerPoint(R)presentation graphics program, and a Microsoft Mail license, while the MicrosoftOffice Professional product also includes Microsoft Access(R) database. Sales ofstand-alone versions of the Microsoft Excel spreadsheet and the Microsoft Wordword processor increased in 1993 but decreased in 1994 as the sales mixcontinued to shift to integrated products.

Microsoft Home, a broad range of products in Microsoft's consumerapplications group, also showed continued growth. The Microsoft Home brandincludes CD-ROM multimedia library titles and products for children's

creativity, personal productivity, and entertainment.

Windows-based software programs represented approximately 85% ofapplications revenues in 1994, up from 65% in 1992 and 75% in 1993.

Hardware product group revenues were $254 million, $233 million, and $203million in 1992, 1993, and 1994. The hardware product group's principal productsare the Microsoft Mouse and BallPoint(R) Mouse pointing devices.

Sales channels. Microsoft has four major channels of distributionincluding: finished goods sales in the U.S. and Canada, Europe, and Other

International; and OEM. Sales in the finished goods channels are primarily todistributors and resellers. OEM channel revenues are license fees from originalequipment manufacturers.

U.S. and Canada channel revenues were $1,062 million, $1,371 million, and$1,575 million in 1992, 1993, and 1994.

Revenues in Europe were $997 million, $1,259 million, and $1,363 million in1992, 1993, and 1994. The 8% revenue growth rate in 1994 was lower than the 26%increase in 1993 because of general economic slowness and a more dramatic shiftto corporate licensing programs in Europe than in other geographic areas.

Other international channel revenues were $223 million in 1992, $392


38/281

million in 1993, and $532 million in 1994. Growth rates continue to be strongdue to customer acceptance of newly localized products and early entrance intoemerging markets.

Microsoft's operating results are affected by foreign exchange rates.Approximately 46%, 44%, and 40% of Microsoft's revenues were collected inforeign currencies during 1992, 1993, and 1994. Since much of Microsoft'sinternational manufacturing costs and operating expenses are also incurred inlocal currencies, the relative translation impact of exchange rates on netincome is less than on revenues.

Microsoft Select was introduced in 1993 and gained popularity in 1994.Select is a corporate license program under which large accounts download acontracted number of copies of specified software products. Average revenue perlicense under Select is lower than the average revenue per retail copy of thesame product shipped through the finished goods channels, reflecting lower costsof distribution.

1023

OEM revenues grew 61% from the prior year to $1,179 million. OEM revenueswere $477 million in 1992 and $731 million in 1993. The primary source of OEMrevenues is licenses of operating systems, particularly MS-DOS and MicrosoftWindows. During 1994, approximately 80% of Windows units were sold throughtheOEM channel, up from approximately 50% in 1992 and 75% in 1993.

Cost of Revenues

1992 CHANGE1993 CHANGE

1994

------ ------ ------

------ ------

Cost ofrevenues...............................$ 467 36% $ 633

21% $ 763Percentage of net

revenues.....................16.9% 16.9%

16.4%


39/281

Cost of revenues as a percentage of net revenues was 16.4% in 1994, downfrom 16.9% in 1992 and 1993. The percentage decreased due to lower disk pricesfrom vendors and a greater percentage of sales of licenses to OEMs and

corporations, offset by increased sales of lower-margin Microsoft Office andupgrade products.

Operating Expenses

1992 CHANGE

1993 CHANGE1994

------ ------ ------

------ ------

Research anddevelopment.......................$ 352 34% $ 470


revenues.....................12.8% 12.5%

13.1%

Sales andmarketing............................$ 854 41% $1,205

15% 1,384Percentage of net

revenues.....................31.0% 32.1%

29.8%

General andadministrative.....................$ 90 32% $ 119


revenues.....................3.3% 3.2%

3.6%

Increases in research and development expenses resulted primarily fromplanned additions to Microsoft's software development and advanced technology


40/281

staffs, as well as higher levels of third-party development costs.

In 1994, sales and marketing expenses increased at a slower rate thanrevenues due to a concerted performance orientation at all sales sites with

particular emphasis on slower headcount (personnel) growth. The increases in theabsolute dollars of sales and marketing expenses in 1993 and 1994 were due toincreased marketing programs and advertising for the launch of new products,planned hiring of marketing personnel, and continued development of ProductSupport Services.

Increases in general and administrative expenses are primarily attributableto higher legal costs and growth in the systems and people necessary to supportoverall increases in the scope of Microsoft's operations.

Nonoperating Income

1992 CHANGE

1993 CHANGE1994

------ ------ ---

--- ------ ------

Nonoperatingincome............................$ 45 67% $ 75

15% $ 86Litigation

charge..............................-- --

$ 90

The primary component of nonoperating income is interest income, which was

$58 million, $83 million, and $104 million in 1992, 1993, and 1994. Increasedinterest income is the result of a larger investment portfolio generated by cashfrom operations, offset in both 1993 and 1994 by declining interest rates.

In the third quarter of 1994, Microsoft recorded a $120 million charge toreflect the estimated impact of a jury verdict in the Stac Electronics patentlitigation and related expenses. In June 1994, Microsoft reached an agreementwith Stac to settle the litigation and adjusted its estimate accordingly,resulting in a credit of $30 million in the fourth quarter and a net pretaxcharge of $90 million for the year.

11


41/281

24

Provision for Income Taxes

1992

CHANGE 1993CHANGE 1994

------ ------

------ ------ ------

Provision for incometaxes..................... $

333 35% $448 29% $

576Effective tax

rate.............................32.0%

32.0%33.5%

The effective tax rate increased in 1994 primarily because of an increasein the U.S. statutory income tax rate. The Notes to Financial Statements at PageF-9 describe the differences between the U.S. statutory and effective income taxrates.

Net Income and Earnings Per Share

1992 CHANGE 1993CHANGE 1994

------ ------ ------ ----

-- ------

Netincome.....................................$ 708 35% $ 953

20% $1,146


42/281

Percentage of netrevenues.....................

25.7% 25.4%24.7%

Earnings pershare............................. $

1.20 31% $ 1.5720% $ 1.88

Net income as a percentage of net revenues decreased in 1994, primarily dueto the Stac Electronics patent litigation charge and increased research anddevelopment expenses, offset by the lower relative level of sales and marketingexpenses. The slight percentage decrease in 1993 from 1992 was attributable tohigher relative sales and marketing expenditures.

Outlook: Issues and Risks

The following issues and risks, among others, should also be considered inevaluating Microsoft's outlook.

Rapid technological change and intense competition. The highly volatilepersonal computer software industry is characterized by rapid technologicalchange, intense competition, and uncertainty as to the widespread acceptance ofnew products. See "MICROSOFT'S BUSINESS -- Competition."

Long-term investment cycle. Developing, manufacturing, and licensing

software is expensive and the investment in product development often involves along pay-back cycle. Microsoft began investing in the principal products thatare significant to its current revenues in the early 1980s. Microsoft's plansfor 1995 include significant investments in software research and developmentand related product opportunities from which significant revenues are notanticipated for a number of years. As discussed above, spending for research anddevelopment increased during 1994 and 1993. Management expects total spendingfor research and development in 1995 to increase over spending in 1994.

Product ship schedules. Delays in the release of new products can causeoperational inefficiencies that impact manufacturing capabilities, distribution

logistics, and telephone support staffing.

Microsoft Office. Revenues from Microsoft Office may increase as apercentage of total revenues in 1995. The price of Microsoft Office is less thanthe sum of the prices for the individual application programs included in thisproduct when such programs are sold separately.

Prices. Future prices Microsoft is able to obtain for its products maydecrease from historical levels depending upon market or other cost factors.

Saturation. Product upgrades, enabling users to upgrade from earlierversions of Microsoft products or from competitors' products, have lower prices


43/281

than new products. As the desktop PC software market becomes saturated, thesales mix shifts from standard products to upgrade products. This trend isexpected to continue in 1995.

Introductory pricing. Microsoft recently offered the Microsoft Accessdatabase product at a low introductory price. This practice may continue withother new product offerings.

Channel mix. Average revenue per license is lower from OEM licenses thanfrom retail versions, reflecting the relatively lower direct costs of operationsin the OEM channel. An increasingly higher percentage of revenues was achievedthrough the OEM channel during 1993 and 1994.

1225

Volume discounts. In 1994, unit sales increased under Microsoft Select, alarge account program designed to permit large organizations to licenseMicrosoft products. Average revenue per copy from Microsoft Select licenseprograms is lower than average revenue per copy from retail versions shippedthrough the finished goods channels.

Foreign exchange. A large percentage of Microsoft sales are transacted inlocal currencies. As a result, Microsoft revenues are subject to foreignexchange rate fluctuations. See "MICROSOFT FINANCIAL STATEMENTS --Notes toFinancial Statements."

Cost of revenues. Although cost of revenues as a percentage of net revenueswas relatively consistent in 1993 and 1994, it varies with channel mix andproduct mix within channels. Changes in channel and product mix, as well as inthe cost of product components, may affect cost of revenues as a percentage ofnet revenues in 1995.

Sales and marketing and support investments. Microsoft's plans for 1995include continued investments in its sales and marketing and support groups.Competitors may be able to enter the market without making investments of suchscale.

Accounting standards. Accounting standards promulgated by the FinancialAccounting Standards Board change periodically. Changes in such standards mayhave a negative impact on Microsoft's future reported earnings.

Intellectual property rights. Microsoft diligently defends its intellectualproperty rights, but unlicensed copying of software represents a loss ofrevenues to Microsoft. While this adversely affects U.S. revenues, revenue lossis more serious outside of the U.S., particularly in certain countries wherelaws are less protective of intellectual property rights. Throughout the world,Microsoft actively educates consumers on the benefits of purchasing genuineproducts and educates lawmakers on the advantages of a business climate where

intellectual property is protected. There can be no assurance that continued


44/281

efforts will affect revenues positively. Further, Microsoft's products may fromtime to time inadvertently infringe on intellectual property rights of others,potentially requiring Microsoft to pay damages or license fees or incursubstantial costs to redesign its products.

Growth rates. Management believes Microsoft's recent revenue growth ratesare not sustainable. Operating expenses as a percentage of revenues may increasein 1995 because of the above factors.

Litigation. Litigation regarding intellectual property rights, patents, andcopyrights is increasing in the PC software industry. In addition, there areother general corporate legal risks. See "Notes To Financial Statements"regarding contingencies related to government regulation and legal proceedings.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER

31, 1993 AND 1994

Net Revenues

Revenues for the first half of fiscal 1995 increased 29% over revenues for

the first half of fiscal 1994.

Product Groups

Systems product group revenues are primarily from licenses of personal

operating systems and business systems with client-server architectures. Systemsrevenues were $963 million in the first six months of 1995, compared to $724million recorded in the same period of 1994, an increase of 33%. Revenuesgenerated by both Microsoft MS-DOS and Microsoft Windows operating systemsincreased from the prior year, primarily through the original equipmentmanufacturer channel. During the first half of 1995, more than 80% of Windowsunits were licensed through the OEM channel.

Applications product group revenues include licenses of desktopproductivity, consumer, and developer programs. Applications revenues were $1.64billion in the first half of 1995, increasing 28% from $1.28 billion in thefirst half of 1994. Increases in applications revenues were led by sales ofMicrosoft Office. Additionally, during the first quarter of 1995, Microsoftreleased new Macintosh-based versions of Microsoft Excel, Microsoft Word, andMicrosoft PowerPoint.

13

26


45/281

Hardware revenues were $123 million and $104 million in the first six

months of 1995 and 1994.

Sales Channels. OEM revenues (primarily personal operating systems) grew40% to $733 million from the $523 million recorded in the comparable period ofthe prior year. MS-DOS continues to be pre-installed on many PCs sold byoriginal equipment manufacturers. In addition, many major OEMs are alsopreinstalling the Microsoft Windows operating system on PCs, leading toincreased revenues through the OEM channel.

Revenues in the U.S. and Canada were $914 million in the first half of 1995compared to $751 million in 1994, an increase of 22%. The latest version ofMicrosoft Office for Windows was introduced in the U.S. during the first half ofthe prior year. Revenues in Europe were $688 million in the first half of 1995compared to $598 million the prior year. Rates of growth for the Europeanchannel have been lower than other retail channels of distribution due togeneral economic slowness and a more dramatic shift to corporate licensing inEurope. Other International channel revenues showed strong growth, increasing to$394 million in the first six months of 1995 from $240 million in the first sixmonths of 1994. Growth rates continue to be strong due to customer acceptance ofnewly localized products and early entrance into emerging markets.

Cost of Revenues, Operating Expenses, and Income Taxes

Cost of revenues as a percentage of revenues was 15.0% in the first half of

1995, compared to 16.3% in the first half of 1994. Contributing to the decreasewere lower disk prices and a shift to more revenues from OEM and corporatelicense programs. While license programs carry lower per unit prices than retailversions shipped through the finished goods channels, there is little cost ofrevenues associated with such programs.

Research and development expenses increased 33% to $377 million, or 13.8%of revenues in the first six months of 1995 from $284 million, or 13.4% ofrevenues in the corresponding six months of 1994. The increase in research anddevelopment expenses resulted primarily from planned hiring of softwaredevelopers and higher levels of third-party development costs.

Sales and marketing expenses increased 35% to $874 million from $649

million in the comparable six month period. As a percentage of revenues, sales


46/281

and marketing expenses were 32.0% and 30.7% in the respective first halves of1995 and 1994. The increase in absolute amounts of sales and marketing expenseswas primarily due to increased marketing costs and headcount related expenses.

General and administrative expenses were 4.1% of revenues in the first halfof 1995 and 3.6% of revenues in the first half of 1994.

Net interest income increased as a result of a larger investment portfoliogenerated by cash from operations combined with slightly higher interest rates.

The effective income tax rate was 33% in the first half of 1995, comparedto 34% in the same period of 1994.

Net Income

Net income for the first half of 1995 was $689 million. Net income as a

percentage of revenues was 25.2% in the first half of 1995, compared with 25.0%in the first half of 1994. The slight increase was the result of lower cost ofrevenues and higher interest income percentages offset by higher levels of

operating expenses.

FINANCIAL CONDITION

Microsoft's cash and short-term investment portfolio totaled $3.8 billion

at December 31, 1994 and represented 64% of total assets. The portfolio isdiversified among security types, industries, and individual issuers.Microsoft's investments are investment grade and liquid. The portfolio, whileinvested predominantly in U.S. dollar denominated securities, also includes

foreign currency positions in anticipation of continued international expansion.Microsoft's portfolio is invested in short-term securities to minimize interestrate risk and to facilitate rapid deployment in the event of immediate cashneeds.

Microsoft has no material long-term debt. The Company has available $70million of standby multicurrency lines of credit. These lines support foreigncurrency hedging and international cash management. Stockholders' equity atDecember 31, 1994 exceeded $4 billion.


47/281

1427

Cash generated from operations has been sufficient historically to fundMicrosoft's investment in research and development activities and facilitiesexpansion. As Microsoft grows, investments will continue in research anddevelopment in existing and advanced areas of technology. Microsoft's cash willbe used to acquire technology or other businesses and to fund strategicventures. Additions to property, plant, and equipment are expected to continue,including facilities and computer systems for research and development, salesand marketing, product support, and administrative staff. On December 31, 1994,commitments related to the construction of new buildings approximated $235million. See "MICROSOFT'S BUSINESS -- Properties."

The exercise of stock options by employees provides additional cash. Theseproceeds have been used in Microsoft's open market stock repurchase programthrough which Microsoft provides shares for stock option and stock purchaseplans. This practice is continuing in 1995. Additionally, Microsoft enhanced itsstock repurchase program by selling put warrants during the first half of 1995.See "MICROSOFT FINANCIAL STATEMENTS -- Notes to FinancialStatements."

Management believes existing cash and short-term investments together withfunds generated from operations should be sufficient to meet Microsoft'soperating requirements for the next 12 months. Microsoft's cash and short-terminvestments are also managed so as to be available for such other strategicinvestment opportunities or other potential large-scale cash needs as mightarise in pursuit of Microsoft's long-term strategies. Additionally, on October28, 1994, Microsoft shareholders authorized Microsoft to issue up to 100 millionshares of preferred stock, which may be used by Microsoft for any propercorporate purpose.

WINDOWS 95 AVAILABILITY

Microsoft is developing a new personal operating system, designed toreplace MS-DOS, Windows, and Windows for Workgroups, as Microsoft's desktopoperating system offering. Microsoft has consistently cautioned that it will notship its new products until vigorous beta testing has been completed andmanagement believes the products are ready for customers. Recently, Microsoftannounced that Windows 95 may not be available in retail stores before August1995. As a result, the majority of revenues associated with Windows 95 willoccur in Microsoft's fiscal 1996 and later years.

EFFECTS OF THE MERGER


48/281

If the Merger is approved, Intuit would become a wholly owned subsidiary of

Microsoft whose financial statements would be part of Microsoft's consolidatedfinancial statements. Microsoft's historical financial statements will be

restated and presented as if Microsoft and Intuit had been combined for allperiods presented. Microsoft's historical results of operations will not bematerially impacted by the restatement, except for the periods when Intuitrecorded one-time charges for purchased in-process research and development inconnection with the acquisitions of ChipSoft, Inc. and Parsons Technology, Inc.When Intuit completed its acquisition of ChipSoft, Inc. in December 1993, Intuitrecorded a charge of $151 million. Such charge will reduce Microsoft's restatedearnings per share approximately $0.24 for the quarter ended December 31, 1993.When Intuit completed its acquisition of Parsons Technology, Inc. in September1994, Intuit recorded a charge of $44 million. Such charge will reduceMicrosoft's restated earnings per share approximately $0.07 for the quarterended September 30, 1994. For future periods, the near-term effect of the Mergeris expected to be slightly dilutive to Microsoft's earnings per share but is notexpected to have a material impact on Microsoft's liquidity or capitalresources.

INTUIT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTSOF OPERATIONS

THE YEAR ENDED JULY 31, 1994 AND THE TWO YEARS ENDEDSEPTEMBER 30, 1993

Proposed Merger with Microsoft Corporation

On October 13, 1994, Intuit entered into an agreement and plan ofreorganization with Microsoft pursuant to which Intuit would become awholly-owned subsidiary of Microsoft whose financial statements would be part ofMicrosoft's consolidated financial statements, as described in this ProxyStatement/Prospectus. See "THE MERGER AND RELATED TRANSACTIONS."

Acquisitions

On December 12, 1993, Intuit completed its merger with ChipSoft, Inc.("ChipSoft"). The total purchase price of the merger was $306.4 million incommon stock, stock options and acquisition costs

1528

($255.3 million net of tangible assets acquired). The acquisition was treated asa purchase for accounting purposes, and, accordingly, the assets and liabilitieswere recorded based on their independently appraised fair values at the date ofthe acquisition. Of the purchase price, $150.5 million was allocated toin-process research and development, $33.5 million to intangible assets and

$82.3 million to goodwill, including approximately $11 million relating to the


49/281

tax effecting of identified intangibles. The amount of the purchase priceallocated to in-process research and development was charged to Intuit'soperations. To date, there have not been any significant variances between theactual cash flows arising from the purchased in-process research and development

and the projected cash flow estimates used in determining the valuation thatwere made at the date of acquisition. In addition to the in-process research anddevelopment charge, Intuit incurred merger-related charges of approximately$20.4 million during the ten months ended July 31, 1994, of which $13 millionrelated to the termination of Intuit's agreement to acquire Legal KnowledgeSystems, Inc. The remaining merger-related liabilities at July 31, 1994 includeprovisions to complete the consolidation of facilities and elimination ofredundancies by integrating business functions, including customer service,technical support and information systems. Results of operations in "SELECTEDFINANCIAL DATA -- INTUIT" and in Intuit's consolidated financial statementsappearing elsewhere in this Proxy Statement/Prospectus include ChipSoft from thedate of acquisition.

In April 1994, Intuit acquired certain assets of the professional taxpreparation business of Best Programs, Inc. ("Best") for an initial purchaseprice of $6.5 million in cash. Up to two additional annual cash "earn out"payments (not to exceed a total of $7.5 million) may become due to Best,depending on the number of Best customers who purchase Intuit's professional taxproducts during the two years following the acquisition. The acquisition wastreated as a purchase for accounting purposes, and, accordingly, the assets andliabilities were recorded based on their fair values at the date of theacquisition. Of the purchase price, $5.8 million was allocated to intangibleassets.

In July 1994, Intuit completed its acquisition of National PaymentClearinghouse, Inc. ("NPC"), for consideration of $7.6 million in common stockand cash. NPC provides electronic banking, bill payment and stock quoteretrieval services to consumers via their modems and personal computers. Theacquisition was treated as a purchase for accounting purposes and, accordingly,the assets and liabilities were recorded based on their fair values at the dateof the acquisition. Of the purchase price, $1.4 million was allocated to in-process research and development, $6.0 million to intangible assets and $2.1million to goodwill. The amount of the purchase price allocated to in-processresearch and development was charged to Intuit's operations in the ten months

ended July 31, 1994. Results of operations include NPC from the date ofacquisition.

On September 27, 1994, Intuit completed its acquisition of ParsonsTechnology, Inc. ("Parsons"), a privately-held consumer software publisher,pursuant to which Parsons became a wholly-owned subsidiary of Intuit. Under theterms of the agreement, Intuit paid Parsons' shareholders approximately $28.8million in cash and issued to Parsons' shareholders approximately 900,000 IntuitShares. The transaction, which was accounted for as a purchase, had an aggregatepurchase price of approximately $67.3 million, which in addition to the aboveamounts, includes approximately $2.7 million in cash and 69,019 shares of Intuitcommon stock that will be paid as deferred compensation for certain

non-competition agreements. Of the purchase price, approximately $44.0 million


50/281

was allocated to in-process research and development. The remaining purchaseprice was allocated as follows, along with the corresponding attributed life:goodwill of $9.9 million (3 years), purchased technology of $2.6 million (1year), customer lists of $4.6 million (3 years), and other intangibles of $6.8

million (2-4 years). The amount allocated to in-process research and developmentwas written-off in the quarter ended October 31, 1994. Results of operationsinclude Parsons from the date of acquisition.

Consistent with Intuit's tests for internally developed software, Intuitdetermined the amounts to be allocated to developed and in-process technologybased on whether technological feasibility had been achieved and whether therewas any alternative future use for the technology. Due to the absence ofdetailed program designs, evidence of technological feasibility was establishedthrough the existence of a completed working model at which point functions,features and technical performance requirements can be demonstrated. As of thedate of the acquisition, Intuit concluded that the in-process technology had noalternative future use after

1629

taking into consideration the potential for usage of the software in differentproducts, resale of the software and internal usage.

The costs to complete the development of in-process technology acquired inthe Parsons' acquisition are anticipated to total approximately $1.7 million,consisting of approximately 100,000 hours of development time. These costs are

expected to be incurred in fiscal 1995. In estimating these costs, Intuitconsidered such factors as the number of developer days committed to the projectand the average fully burdened salary of employees involved in programming,quality assurance, and publications/graphics required to complete productdevelopment.

Merger-related costs reduced net income by $198.8 million for the tenmonths ended July 31, 1994. Assuming no additional acquisitions other than thosediscussed above and no impairment of value causing an acceleration ofamortization, the net income effect of future amortization is anticipated to beapproximately $41.7 million, $36.8 million, $17.4 million, $3.1 million, and

$1.2 million for the years ended July 31, 1995 through 1999, respectively. Giventhe high levels of non-cash amortization expense arising from the variousacquisitions discussed above, Intuit may report significant net losses forfiscal 1995 and fiscal 1996.

Althou

sec filings - microsoft - 0000891020-95-000029

Documents