Microsoft 2009 Annual Report Download - page 18

Download and view the complete annual report

Please find page 18 of the 2009 Microsoft annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 84

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84

PAGE 18
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
This long-term focus on investment in research and development has enabled us to lay a foundation for future
growth by delivering innovative products, creating opportunities for partners, and improving customer satisfaction.
Our focus in fiscal year 2010 is to build on this foundation and to continue to execute well in key areas through
ongoing innovation on our integrated software platform, by responding effectively to customer and partner needs,
and by focusing internally on product excellence, business efficacy, and accountability across the company.
Summary of Results for Fiscal Years 2009, 2008, and 2007
(In millions, except percentages and per share amounts) 2009 2008 2007
Percentage
Change 2009
Versus 2008
Percentage
Change 2008
Versus 2007
Revenue $58,437 $60,420 $51,122 (3)% 18%
Operating income $20,363 $22,271 $18,438 (9)% 21%
Diluted earnings per share $1.62 $1.87 $1.42 (13)% 32%
Fiscal year 2009 compared with fiscal year 2008
Revenue declined across most segments primarily driven by weakness in the global PC market and the unfavorable
economic environment. Foreign currency exchange rates accounted for a $486 million or one percentage point
increase in revenue. Primary factors contributing to the decline include the following:
• Revenue from Windows operating systems declined reflecting PC market weakness, especially PCs sold to
businesses, and a decline in the OEM premium mix.
• Revenue from our Entertainment and Devices Division decreased across most lines of business including
Xbox 360 platform and PC game revenue which declined primarily as a result of decreased revenue per
console due to price reductions during the past 12 months, partially offset by increased console sales and
Xbox Live revenue.
The above declines were partially offset by increased server and server application revenue, reflecting recognition
of deferred revenue from previously signed agreements and continued adoption of the Windows Server Platform and
applications through SQL Server, Enterprise CAL Suites, and System Center products.
Operating income decreased primarily reflecting decreased revenue. Operating expenses were flat with
decreased general and administrative and sales and marketing expenses offset by increased headcount-related
expenses, cost of revenue, and employee severance charges.
• General and administrative expenses decreased $1.4 billion or 28%, primarily due to decreased costs for
legal settlements and contingencies. We incurred $283 million of legal charges during the twelve months
ended June 30, 2009 as compared to $1.8 billion during the twelve months ended June 30, 2008. The prior
year costs were primarily related to the European Commission fine of $1.4 billion (€899 million).
• Sales and marketing expenses decreased $381 million or 3%, primarily driven by the resource management
program. As part of that program, we reduced marketing and advertising expenses.
• Headcount-related expenses, excluding $330 million of employee severance charges, increased 7%, driven
by a 2% increase in headcount during the past 12 months and an increase in salaries and benefits for existing
headcount.
• Cost of revenue increased $557 million or 5%, primarily reflecting increased online costs, including online
traffic acquisition, data center and equipment, and headcount-related costs, partially offset by decreased
Xbox 360 platform costs.
In January 2009, we announced and implemented a resource management program to reduce discretionary
operating expenses, employee headcount, and capital expenditures. As part of this program, we announced the
elimination of up to 5,000 positions in research and development, marketing, sales, finance, legal, human resources,
and information technology by June 30, 2010. During the twelve months ended June 30, 2009, we recorded
employee severance charges of $330 million for the expected reduction in employee headcount.
Diluted earnings per share declined primarily reflecting decreased net income, partially offset by share
repurchases during the past 12 months. We repurchased 318 million shares during the twelve months ended
June 30, 2009.