10-KPeriod: FY2013

MICROSOFT CORP Annual Report, Year Ended Jun 30, 2013

Filed July 30, 2013For Securities:MSFT

Summary

Microsoft Corporation's 2013 10-K filing reveals a company navigating significant technological shifts and investing heavily in its "devices and services" strategy. The company reported solid revenue growth, driven by its Server and Tools segment and newer offerings like Windows 8, Surface, and Office 365. However, the Windows Division faced headwinds from a declining PC market, impacting OEM revenue. Key financial highlights include robust operating income growth, largely due to a significant goodwill impairment charge in the prior year that did not recur. The company maintained a strong cash position, with substantial cash held by foreign subsidiaries. Microsoft continued its commitment to returning value to shareholders through dividends and share repurchases. The report also underscores the company's ongoing investment in research and development, highlighting a strategic pivot towards cloud computing and an integrated family of devices and services, despite the inherent risks and uncertainties associated with these transformative initiatives.

Financial Highlights

55 data points
Beta

Revenue

$77.85B

73.8% Gross Margin

Net Income

$21.86B

28.1% Net Margin

EPS (Diluted)

$2.58

Total Assets

$142.43B

Cash & Equivalents

$3.80B

Free Cash Flow

$24.58B

Financial Statements
Beta
Revenue$77.85B
Cost of Revenue$20.39B
Gross Profit$57.46B
R&D Expenses$10.41B
Operating Expenses$30.70B
Operating Income$26.76B
Interest Expense$429.00M
Net Income$21.86B
EPS (Basic)$2.61
EPS (Diluted)$2.58
Shares Outstanding (Basic)8.38B
Shares Outstanding (Diluted)8.47B

Key Highlights

  • 1Revenue increased by 6% to $77.8 billion, primarily driven by growth in Server and Tools and new products like Windows 8, Surface, and Office 365.
  • 2Operating income saw a substantial increase of 23% to $26.8 billion, largely influenced by the absence of a $6.2 billion goodwill impairment charge from the prior year.
  • 3Diluted Earnings Per Share (EPS) grew by 29% to $2.58, benefiting from the absence of prior year charges and revenue growth.
  • 4The company reported $77.0 billion in cash, cash equivalents, and short-term investments, demonstrating a strong liquidity position.
  • 5Research and development expenses remained significant at $10.4 billion, representing 13% of revenue, indicating continued investment in innovation.
  • 6Significant charges were incurred in the Windows Division, including a $900 million provision for Surface RT inventory adjustments and increased marketing costs for Windows 8.
  • 7Microsoft announced a major organizational realignment in July 2013 to better execute its "devices and services" strategy.

Frequently Asked Questions

Microsoft's revenue growth in fiscal year 2013 was primarily driven by its Server and Tools segment, which saw increased sales of SQL Server, System Center, and Windows Server. Additionally, new product launches like Windows 8, Surface devices, and the new Office suite, along with continued growth in Office 365 subscriptions, contributed positively to the revenue increase.

The declining x86 PC market negatively impacted Microsoft's Windows Division, specifically its Original Equipment Manufacturer (OEM) revenue. While new products like Windows 8 and Surface were launched, the overall contraction in PC shipments presented a significant challenge for this core segment.

Microsoft continued to invest heavily in its "devices and services" strategy and cloud-based offerings like Office 365 and Windows Azure. The report acknowledges the opportunities and execution risks associated with this transformation, noting that investments in datacenters and infrastructure for cloud services are increasing operating costs and may impact operating margins.

In fiscal year 2013, Microsoft recorded a charge of approximately $900 million for Surface RT inventory adjustments. A significant goodwill impairment charge of $6.2 billion, related to the Online Services Division, was recorded in the prior fiscal year (2012) and did not recur in 2013, which significantly boosted operating income and net income in comparison. The company also incurred a €561 million ($733 million) fine from the European Commission.