10-KPeriod: FY2005

MICROSOFT CORP Annual Report, Year Ended Jun 30, 2005

Filed August 26, 2005For Securities:MSFT

Summary

Microsoft Corporation's 2005 10-K filing highlights a year of significant revenue growth, reaching $39.788 billion, an 8% increase from the previous year. This growth was primarily driven by strong performance in the Server and Tools, Client, and Information Worker segments, benefiting from increased PC and server hardware shipments and the positive impact of foreign currency exchange rates. Operating income saw a substantial surge of 61%, reaching $14.561 billion, largely due to decreased stock-based compensation expenses, increased revenue from higher-margin segments, and a reduction in legal costs associated with major litigation. The company continues to invest heavily in research and development, particularly for upcoming products like Windows Vista and Office 12, positioning itself for future innovation. Microsoft also returned significant capital to shareholders through a substantial $32.64 billion special dividend and continued its aggressive share repurchase program, underscoring a strong financial position and commitment to shareholder value.

Key Highlights

  • 1Revenue increased by 8% to $39.788 billion in fiscal year 2005.
  • 2Operating income grew significantly by 61% to $14.561 billion, benefiting from reduced stock-based compensation and legal expenses.
  • 3The Server and Tools, Client, and Information Worker segments were key revenue drivers.
  • 4Significant investments in R&D for future products like Windows Vista and Office 12.
  • 5Returned $32.64 billion to shareholders via a special dividend and continued active share repurchase program ($8.0 billion in fiscal year 2005).
  • 6Cash and short-term investments stood at $37.75 billion at fiscal year-end 2005, reflecting strong liquidity.

Frequently Asked Questions

Revenue growth in fiscal year 2005 was primarily driven by increased licensing of Windows Server operating systems and other server applications, Windows Client operating systems through OEMs, and Office and other Information Worker products. Growth in PC and server hardware shipments, along with favorable foreign currency exchange rates, also contributed significantly. The launch of 'Halo 2' for Xbox also positively impacted revenue.

Operating income saw a substantial increase due to a decline in stock-based compensation expense, a strategic shift towards granting stock awards instead of options, and reduced operating expenses related to major legal settlements in fiscal year 2005 compared to fiscal year 2004. Revenue growth in higher-margin segments also contributed to improved profitability.

Microsoft's strategy focuses on continued innovation through significant investment in research and development, particularly for upcoming major releases like Windows Vista and Office 12. The company aims to grow its anchor businesses (Client, Server & Tools, Information Worker), expand its innovation portfolio with new technologies and higher-value product versions, and deliver software services. They are also focused on reducing software piracy and expanding into emerging markets.

Microsoft returned a substantial amount of capital to shareholders in fiscal year 2005. This included a significant special dividend of $3.00 per share, totaling $32.64 billion, paid in December 2004. Additionally, the company continued its share repurchase program, buying back approximately 312 million shares for $8.0 billion during fiscal year 2005, as part of its broader $30 billion repurchase plan approved in July 2004.