10-KPeriod: FY2015

MICROSOFT CORP Annual Report, Year Ended Jun 30, 2015

Filed July 31, 2015For Securities:MSFT

Summary

Microsoft's 2015 10-K filing highlights a pivotal year of transformation driven by a "mobile-first, cloud-first" strategy. The company focused on reinventing productivity, building an intelligent cloud platform, and creating more personal computing experiences. Revenue grew 8% year-over-year, reaching $93.6 billion, largely due to strong performance in Commercial Cloud, Surface devices, and server products. However, operating income saw a significant 35% decline to $18.2 billion, primarily impacted by $10 billion in impairment, integration, and restructuring charges, notably a $7.5 billion goodwill and asset impairment charge related to the Phone Hardware business. Despite the operational challenges and significant charges impacting profitability, Microsoft's strategic shift towards cloud services like Office 365 Commercial and Azure showed strong momentum, with Office 365 Commercial seats increasing by 74% and Azure experiencing triple-digit growth in its Q4. The company also emphasized its commitment to innovation through substantial R&D investments, which remained consistent at 13% of revenue. Key developments included the impending launch of Windows 10 and the acquisition of Mojang, the developer of Minecraft, underscoring a continued focus on expanding its ecosystem and diversifying its product portfolio.

Financial Highlights

55 data points
Beta

Revenue

$93.58B

64.7% Gross Margin

Net Income

$12.19B

13.0% Net Margin

EPS (Diluted)

$1.48

Total Assets

$174.47B

Cash & Equivalents

$5.59B

Free Cash Flow

$23.72B

Financial Statements
Beta
Revenue$93.58B
Cost of Revenue$33.04B
Gross Profit$60.54B
R&D Expenses$12.05B
Operating Expenses$42.38B
Operating Income$18.16B
Interest Expense$781.00M
Net Income$12.19B
EPS (Basic)$1.49
EPS (Diluted)$1.48
Shares Outstanding (Basic)8.18B
Shares Outstanding (Diluted)8.25B

Key Highlights

  • 1Revenue increased by 8% to $93.6 billion, driven by cloud services, Surface, and server products.
  • 2Operating income decreased by 35% to $18.2 billion due to $10 billion in impairment, integration, and restructuring charges, including a significant goodwill impairment in the Phone Hardware segment.
  • 3Commercial Cloud revenue doubled, and Office 365 Commercial seats grew by 74%, indicating strong adoption of cloud services.
  • 4Azure demonstrated triple-digit revenue and compute usage growth in the fourth quarter.
  • 5Research and Development expenses remained a significant focus, holding steady at 13% of revenue, underscoring investment in future technologies.
  • 6The company prepared for the launch of Windows 10, positioning it as a crucial element in the 'more personal computing' ambition.
  • 7Acquisition of Mojang, the developer of Minecraft, aimed to enhance the gaming portfolio and expand reach across ecosystems.

Frequently Asked Questions

The acquisition of Nokia's Devices and Services business in April 2014 significantly impacted the Phone Hardware segment. In fiscal year 2015, Microsoft recorded a substantial goodwill and asset impairment charge of $7.5 billion related to this segment, along with $2.5 billion in integration and restructuring expenses, leading to a $10 billion reduction in operating income and a $1.15 decrease in diluted EPS for the year.

Microsoft's cloud business, particularly Commercial Cloud offerings like Office 365 Commercial and Azure, showed robust growth. Office 365 Commercial revenue doubled, and seat growth was 74%. Azure experienced triple-digit growth in revenue and compute usage in the fourth quarter of fiscal year 2015. The company highlighted a commercial cloud annualized run rate exceeding $8 billion by the end of the fiscal year.

Microsoft's overarching strategy is centered around a 'mobile-first, cloud-first' world. Key ambitions include reinventing productivity and business processes through integrated services like Office 365, building the intelligent cloud platform with Azure, and creating more personal computing experiences driven by Windows 10. Significant investments in research and development support these strategic pillars.

Microsoft maintained a strong liquidity position, with cash, cash equivalents, and short-term investments totaling $96.5 billion at June 30, 2015. A significant portion of this cash ($94.4 billion) was held by foreign subsidiaries. The company continued its share repurchase program, buying back $13.2 billion in shares during the fiscal year, and also declared dividends totaling $10.1 billion.