Microsoft 2012 Annual Report Download - page 26

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Certain corporate-level activity is not allocated to our segments, including costs of: broad-based sales and marketing;
product support services; human resources; legal; finance; information technology; corporate development and
procurement activities; research and development; and legal settlements and contingencies.
Fiscal year 2012 compared with fiscal year 2011
Corporate-level expenses increased due mainly to full year Puerto Rican excise taxes, higher headcount-related
expenses, and changes in foreign currency exchange rates. These increases were offset in part by lower legal charges,
which were $56 million in fiscal year 2012 compared with $332 million in fiscal year 2011.
Fiscal year 2011 compared with fiscal year 2010
Corporate-level expenses increased due mainly to new Puerto Rican excise taxes, certain revenue related sales and
marketing expenses, and increased headcount-related expenses. These increases were offset in part by lower legal
charges, which were $332 million in fiscal year 2011 compared with $533 million in fiscal year 2010.
OPERATING EXPENSES
Cost of Revenue
(In millions, except percentages)
2012
2011
2010
Percentage
Change 2012
Versus 2011
Percentage
Change 2011
Versus 2010
Cost of revenue
$
17,530
$
15,577
$
12,395
13%
26%
As a percent of revenue
24%
22%
20%
2ppt
2ppt
Cost of revenue includes: manufacturing and distribution costs for products sold and programs licensed; operating costs
related to product support service centers and product distribution centers; costs incurred to include software on PCs sold
by OEMs, to drive traffic to our websites, and to acquire online advertising space (“traffic acquisition costs”); costs
incurred to support and maintain Internet-based products and services including royalties; warranty costs; inventory
valuation adjustments; costs associated with the delivery of consulting services; and the amortization of capitalized
research and development costs.
Fiscal year 2012 compared with fiscal year 2011
Cost of revenue increased reflecting higher headcount-related costs, payments made to Nokia, and changes in the mix of
products and services sold. Headcount-related expenses increased 20%, primarily related to increased Enterprise
Services headcount.
Fiscal year 2011 compared with fiscal year 2010
Cost of revenue increased primarily due to increased volumes of Xbox 360 consoles and Kinect for Xbox 360 sold, higher
costs associated with our online offerings, including traffic acquisition costs, and higher expenses from providing
Enterprise Services, as well as royalty costs relating to Xbox LIVE digital content sold.
Research and Development
(In millions, except percentages)
2012
2011
2010
Percentage
Change 2012
Versus 2011
Percentage
Change 2011
Versus 2010
Research and development
$
9,811
$
9,043
$
8,714
8%
4%
As a percent of revenue
13%
13%
14%
0ppt
(1)ppt