01—Abstract
Summary
Summary of the 10-K filed July 30, 2013. Cited figures are marked; the original filing is the authoritative source.
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.
02—Key points
Key Highlights
- Revenue 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.
- Operating 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.
- Diluted Earnings Per Share (EPS) grew by 29% to $2.58, benefiting from the absence of prior year charges and revenue growth.
- The company reported $77.0 billion in cash, cash equivalents, and short-term investments, demonstrating a strong liquidity position.
- Research and development expenses remained significant at $10.4 billion, representing 13% of revenue, indicating continued investment in innovation.
- Significant charges were incurred in the Windows Division, including a $900 million provision for Surface RT inventory adjustments and increased marketing costs for Windows 8.
- Microsoft announced a major organizational realignment in July 2013 to better execute its "devices and services" strategy.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Microsoft Corp kept $0.28.
- Revenue$77.85B100.0%
- Cost of revenue−$20.39B26.2%
- Gross profit$57.46B73.8%
- Operating costs−$30.70B39.4%
- Operating income$26.76B34.4%
- Interest, other & tax−$4.90B6.3%
- Net income$21.86B28.1%
Where FY2013 revenue went
$77.85B- Net income: $21.86B, 28% of revenue
- Cost of revenue: $20.39B, 26% of revenue
- Other operating costs: $20.29B, 26% of revenue
- R&D: $10.41B, 13% of revenue
- Interest, other & tax: $4.90B, 6.3% of revenue
Kept 28% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed July 30, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $77.85B$73.72B | +5.6% |
| Cost of Revenue | $20.39B$17.53B | +16.3% |
| Gross Profit | $57.46B$56.19B | +2.3% |
| R&D Expenses | $10.41B$9.81B | +6.1% |
| Operating Expenses | $30.70B$34.43B | −10.8% |
| Operating Income | $26.76B$21.76B | +23.0% |
| Interest Expense | $429.00M$380.00M | +12.9% |
| Net Income | $21.86B$16.98B | +28.8% |
| EPS (Basic) | $2.61$2.02 | +29.2% |
| EPS (Diluted) | $2.58$2.00 | +29.0% |
| Shares Outstanding (Basic) | 8.38B8.40B | −0.3% |
| Shares Outstanding (Diluted) | 8.47B8.51B | −0.4% |
05—Questions
Frequently Asked Questions
What were the main drivers of Microsoft's revenue growth in fiscal year 2013?
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.
What impact did the PC market have on Microsoft's performance?
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.
How did the company's investment in cloud services and devices fare?
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.
What significant charges or impairments did Microsoft record in fiscal year 2013?
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.
06—Continue