Microsoft 2011 Annual Report Download - page 26

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26
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 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 to $533 million in fiscal year 2010.
Fiscal year 2010 compared with fiscal year 2009
Corporate-level expenses decreased due mainly to employee severance charges of $330 million incurred in the
prior year, decreased partner payments, and reductions in other costs due to resource management efforts.
These decreases in expenses were offset in part by an increase in legal charges and costs associated with
broad-based sales and marketing activities. Legal charges were approximately $533 million compared to $283
million in the prior year.
OPERATING EXPENSES
Cost of Revenue
(In millions, except percentages) 2011 2010 2009
Percentage
Change 2011
Versus 2010
Percentage
Change 2010
Versus 2009
Cost of revenue $ 15,577 $ 12,395 $ 12,155 26% 2%
As a percent of revenue 22%
20% 21% 2ppt (1)ppt
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 Web sites, 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 2011 compared with fiscal year 2010
Cost of revenue increased primarily due to increased volumes of Xbox 360 consoles and Kinect sensors 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.
Fiscal year 2010 compared with fiscal year 2009
Cost of revenue increased reflecting higher online costs, mainly Yahoo! reimbursement and implementation costs
and traffic acquisition costs, as well as increased royalty costs resulting from increased Xbox LIVE digital
marketplace third-party content sales and charges resulting from the discontinuation of the KIN phone. For the
current fiscal year, these costs were offset in part by lower Xbox 360 console costs and reductions in other costs
due to resource management efforts.
Research and Development
(In millions, except percentages) 2011 2010 2009
Percentage
Change 2011
Versus 2010
Percentage
Change 2010
Versus 2009
Research and development $ 9,043 $ 8,714 $ 9,010 4% (3)%
As a percent of revenue 13%
14% 15% (1)ppt (1)ppt