Microsoft 2013 Annual Report Download - page 20

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RESULTS OF OPERATIONS
Summary
(In millions, except percentages and per share amounts)
2013
2012
2011
Percentage
Change 2013
Versus 2012
Percentage
Change
2012
Versus 2011
Revenue
$ 77,849
$ 73,723
$ 69,943
6%
5%
Operating income
$ 26,764
$ 21,763
$ 27,161
23%
(20)%
Diluted earnings per share
$ 2.58
$ 2.00
$ 2.69
29%
(26)%
Fiscal year 2013 compared with fiscal year 2012
Revenue increased, primarily due to higher revenue from Server and Tools as well as revenue from new products and
services, including Windows 8, Surface, and the new Office, offset in part by the impact on revenue of a decline in the x86
PC market.
Operating income grew, primarily due to the $6.2 billion goodwill impairment charge related to our OSD business recorded
during the prior year. Other key changes in cost of revenue and operating expenses were:
• Cost of revenue increased $2.7 billion or 16%, reflecting increased product costs associated with Surface and
Windows 8, including an approximately $900 million charge for Surface RT inventory adjustments, higher
headcount-related expenses, payments made to Nokia related to joint strategic initiatives, royalties on Xbox
LIVE content, and retail stores expenses, offset in part by decreased costs associated with lower sales of Xbox
360 consoles and decreased traffic acquisition costs.
• Sales and marketing expenses increased $1.4 billion or 10%, reflecting advertising of Windows 8 and Surface.
• Research and development expenses increased $600 million or 6%, due mainly to higher headcount-related
expenses, largely related to the Entertainment and Devices Division.
• General and administrative expenses increased $580 million or 13%, due to higher legal charges, primarily the
EU fine of $733 million.
Fiscal year 2012 compared with fiscal year 2011
Revenue increased primarily due to strong sales of Server and Tools products and services and the 2010 Microsoft Office
system, offset in part by the decline in Windows operating system revenue primarily due to the deferral of $540 million of
revenue relating to the Windows Upgrade Offer. Revenue in fiscal year 2012 also included Skype revenue from the date
of acquisition.
Operating income decreased reflecting a goodwill impairment charge of $6.2 billion related to our OSD business segment.
Other key changes in cost of revenue and operating expenses were:
• Cost of revenue increased $2.0 billion or 13%, reflecting higher costs associated with providing Server and Tools
products and services, payments made to Nokia related to joint strategic initiatives, higher Xbox 360 royalty
costs, and other changes in the mix of products and services sold.
• Research and development expenses increased $768 million or 8%, due mainly to higher headcount-related
expenses.
• General and administrative expenses increased $347 million or 8%, due mainly to higher headcount-related
expenses and the full year impact of new Puerto Rican excise taxes, offset in part by decreased legal charges.
Headcount-related expenses were higher across the company reflecting a 4% increase in headcount from June 30, 2011
and changes in our employee compensation program.