Income Statements (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Sep. 30, 2009	Sep. 30, 2008
Revenue	$ 12,920	$ 15,061
Operating expenses:
Cost of revenue	2,842	2,848
Research and development	2,065	2,283
Sales and marketing	2,790	3,044
General and administrative	741	887
Employee severance	0	0
Total operating expenses	8,438	9,062
Operating income	4,482	5,999
Other income (expense)	283	(8)
Income before income taxes	4,765	5,991
Provision for income taxes	1,191	1,618
Net income	$ 3,574	$ 4,373
Earnings per share:
Basic	$ 0.40	$ 0.48
Diluted	$ 0.40	$ 0.48
Weighted average shares outstanding:
Basic	8,914	9,084
Diluted	8,983	9,183
Cash dividends declared per common share	$ 0.13	$ 0.13

Balance Sheets (USD $) In Millions, unless otherwise specified	3 Months Ended
	Sep. 30, 2009	Jun. 30, 2009
Current assets:
Cash and cash equivalents	$ 8,823	$ 6,076
Short-term investments (including securities pledged as collateral of $3,261 and $1,540)	27,905	25,371
Total cash, cash equivalents, and short-term investments	36,728	31,447
Accounts receivable, net of allowance for doubtful accounts of $436 and $451	8,587	11,192
Inventories	1,150	717
Deferred income taxes	2,441	2,213
Other	3,325	3,711
Total current assets	52,231	49,280
Property and equipment, net of accumulated depreciation of $7,853 and $7,547	7,512	7,535
Equity and other investments	6,006	4,933
Goodwill	12,582	12,503
Intangible assets, net	1,653	1,759
Deferred income taxes	0	279
Other long-term assets	1,628	1,599
Total assets	81,612	77,888
Current liabilities:
Accounts payable	3,287	3,324
Short-term debt	2,250	2,000
Accrued compensation	2,224	3,156
Income taxes	847	725
Short-term unearned revenue	13,567	13,003
Securities lending payable	3,534	1,684
Other	3,052	3,142
Total current liabilities	28,761	27,034
Long-term debt	3,746	3,746
Long-term unearned revenue	1,201	1,281
Deferred income taxes	155	0
Other long-term liabilities	6,537	6,269
Commitments and contingencies	-	-
Stockholders' equity:
Common stock and paid-in capital-shares authorized 24,000; outstanding 8,900 and 8,908	62,293	62,382
Retained deficit, including accumulated other comprehensive income of $1,334 and $969	(21,081)	(22,824)
Total stockholders' equity	41,212	39,558
Total liabilities and stockholders' equity	$ 81,612	$ 77,888

Balance Sheets (Parenthetical) (USD $) In Millions, unless otherwise specified	Sep. 30, 2009	Jun. 30, 2009
Short-term investments, securities pledged as collateral	$ 3,261	$ 1,540
Accounts receivable, allowance for doubtful accounts	436	451
Property and equipment, accumulated depreciation	7,853	7,547
Common stock, shares authorized	24,000	24,000
Common stock, outstanding	8,900	8,908
Retained deficit, accumulated other comprehensive income	$ 1,334	$ 969

Cash Flow Statements (USD $) In Millions, unless otherwise specified	3 Months Ended
	Sep. 30, 2009	Sep. 30, 2008
Operations
Net income	$ 3,574	$ 4,373
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other noncash items	646	585
Stock-based compensation	443	443
Net recognized losses (gains) on investments and derivatives	(66)	36
Excess tax benefits from stock-based compensation	(9)	(44)
Deferred income taxes	(46)	376
Deferral of unearned revenue	6,679	4,186
Recognition of unearned revenue	(6,237)	(6,044)
Changes in operating assets and liabilities:
Accounts receivable	2,748	3,985
Other current assets	(654)	(558)
Other long-term assets	(78)	(116)
Other current liabilities	(1,239)	(4,552)
Other long-term liabilities	346	700
Net cash from operations	6,107	3,370
Financing
Short-term borrowings, maturities of 90 days or less, net	378	1,975
Proceeds from issuance of debt, maturities longer than 90 days	695	0
Repayments of debt, maturities longer than 90 days	(823)	0
Common stock issued	248	228
Common stock repurchased	(1,540)	(6,493)
Common stock cash dividends	(1,157)	(998)
Excess tax benefits from stock-based compensation	9	44
Net cash used in financing	(2,190)	(5,244)
Investing
Additions to property and equipment	(435)	(778)
Acquisition of companies, net of cash acquired	(39)	(377)
Purchases of investments	(10,490)	(4,246)
Maturities of investments	3,498	464
Sales of investments	4,417	7,075
Securities lending payable	1,850	(1,543)
Net cash from (used in) investing	(1,199)	595
Effect of exchange rates on cash and cash equivalents	29	(56)
Net change in cash and cash equivalents	2,747	(1,335)
Cash and cash equivalents, beginning of period	6,076	10,339
Cash and cash equivalents, end of period	$ 8,823	$ 9,004

Stockholders' Equity Statements (USD $) In Millions, unless otherwise specified	Total	Common stock and paid-in capital	Retained deficit
Balance, beginning of period at Jun. 30, 2008		$ 62,849	$ (26,563)
Net income	4,373		4,373
Common stock issued		226
Other comprehensive income:
Net unrealized gains (losses) on derivatives			293
Net unrealized gains (losses) on investments			(398)
Translation adjustments and other			(158)
Comprehensive income			4,110
Common stock cash dividends			(1,157)
Common stock repurchased		(1,897)	(4,451)
Stock-based compensation		443
Stock-based compensation income tax benefits (deficiencies)		33
Other, net		1
Balance, end of period at Sep. 30, 2008	33,594	61,655	(28,061)
Balance, beginning of period at Jun. 30, 2009	39,558	62,382	(22,824)
Net income	3,574		3,574
Common stock issued		248
Other comprehensive income:
Net unrealized gains (losses) on derivatives			(319)
Net unrealized gains (losses) on investments			588
Translation adjustments and other			96
Comprehensive income			3,939
Common stock cash dividends			(1,157)
Common stock repurchased		(733)	(1,039)
Stock-based compensation		443
Stock-based compensation income tax benefits (deficiencies)		(46)
Other, net		(1)
Balance, end of period at Sep. 30, 2009	$ 41,212	$ 62,293	$ (21,081)

NOTE 1 ACCOUNTING POLICIES	3 Months Ended
NOTE 1 ACCOUNTING POLICIES	Sep. 30, 2009
Notes to Financial Statements [Abstract]
NOTE 1 ACCOUNTING POLICIES	NOTE 1 ACCOUNTING POLICIES Basis of Presentation In the opinion of management, the accompanying balance sheets and related interim statements of income, cash flows, and stockholders’ equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples include: estimates of loss contingencies, product warranties, product life cycles, product returns, and stock-based compensation forfeiture rates; assumptions such as the elements comprising a software arrangement, including the distinction between upgrades/enhancements and new products; when technological feasibility is achieved for our products; the potential outcome of future tax consequences of events that have been recognized in our financial statements or tax returns; estimating the fair value and/or goodwill impairment for our reporting units; and determining when investment impairments are other-than-temporary. Actual results and outcomes may differ from management’s estimates and assumptions. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Microsoft Corporation 2009 Form 10-K filed on July 30, 2009 with the U.S. Securities and Exchange Commission. Principles of Consolidation The financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated. Equity investments through which we exercise significant influence but do not exercise control and are not the primary beneficiary are accounted for using the equity method. Investments through which we are not able to exercise significant influence over the investee and which do not have readily determinable fair values are accounted for under the cost method. Subsequent Events We evaluated events occurring between the end of our fiscal quarter, September 30, 2009 and October 23, 2009 when the financial statements were issued. Recently Adopted Accounting Guidance On July 1, 2009, we adopted authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on business combinations. The guidance retains the fundamental requirements that the acquisition method of accounting (previously referred to as the purchase method of accounting) be used for all business combinations, but requires a number of changes, including changes in the way assets and liabilities are recognized and measured as a result of business combinations. It also requires the capitalization of in-process research and development at fair value and requires the expensing of acquisition-related costs as incurred. We have applied this guidance to business combinations completed since July 1, 2009. On July 1, 2009, we adopted the authoritative guidance issued by the FASB that changes the accounting and reporting for non-controlling interests. Non-controlling interests are to be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control are to be accounted for as equity transactions. In addition, net income attributable to a non-controlling interest is to be included in net income and, upon a loss of control, the interest sold, as well as any interest retained, is to be recorded at fair value with any gain or loss recognized in net income. Adoption of the new guidance did not have a material impact on our financial statements. On July 1, 2009, we adopted the authoritative guidance on fair value measurement for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Adoption of the new guidance did not have a material impact on our financial statements. Recent Accounting Guidance Not Yet Adopted In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective for us beginning July 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We believe adoption of this new guidance will not have a material impact on our financial statements. In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities, which is effective for us beginning July 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. We believe adoption of this new guidance will not have a material impact on our financial statements.

- Definition

Description containing the entire organization, consolidation and basis of presentation of financial statements disclosure. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements.

+ References+ Details

NOTE 4 INVESTMENTS

3 Months Ended

Sep. 30, 2009

Notes to Financial Statements [Abstract]

NOTE 4 INVESTMENTS

Investment Components

The components of investments, including associated derivatives, were as follows:


(In millions)	Cost Basis		Unrealized Gains		Unrealized Losses			Recorded Basis		Cash and Cash Equivalents		Short-term Investments		Equity and Other Investments


September 30, 2009

Cash	$	2,104	$	—	$	—		$	2,104	$	2,104	$	—	$	—
Mutual funds		1,325		1		(6	)		1,320		1,224		96		—
Commercial paper		1,726		—		—			1,726		898		828		—
Certificates of deposit		1,926		—		—			1,926		1,771		155		—
U.S. government and agency securities		15,421		73		(1	)		15,493		2,432		13,061		—
Foreign government bonds		3,599		95		(1	)		3,693		—		3,693		—
Mortgage-backed securities		4,283		107		(4	)		4,386		—		4,386		—
Corporate notes and bonds		5,344		304		(17	)		5,631		201		5,430		—
Municipal securities		436		4		—			440		193		247		—
Common and preferred stock		4,373		1,233		(81	)		5,525		—		—		5,525
Other investments		490		—		—			490		—		9		481

Total	$	41,027	$	1,817	$	(110	)	$	42,734	$	8,823	$	27,905	$	6,006


(In millions)	Cost Basis		Unrealized Gains		Unrealized Losses			Recorded Basis		Cash and Cash Equivalents		Short-term Investments			Equity and Other Investments


June 30, 2009

Cash	$	2,064	$	—	$	—		$	2,064	$	2,064	$	—		$	—
Mutual funds		1,007		—		(25	)		982		900		82			—
Commercial paper		2,601		—		—			2,601		400		2,201			—
Certificates of deposit		555		—		—			555		275		280			—
U.S. government and agency securities		13,450		21		(5	)		13,466		2,369		11,097			—
Foreign government bonds		3,450		71		(4	)		3,517		—		3,517			—
Mortgage-backed securities		3,353		81		(16	)		3,418		—		3,418			—
Corporate notes and bonds		4,361		287		(52	)		4,596		—		4,596			—
Municipal securities		255		2		(1	)		256		68		188			—
Common and preferred stock		4,015		627		(182	)		4,460		—		—			4,460
Other investments		465		—		—			465		—		(8	)		473

Total	$	35,576	$	1,089	$	(285	)	$	36,380	$	6,076	$	25,371		$	4,933

Unrealized Losses on Investments

Investments with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair values were as follows:


	Less than 12 Months					12 Months or Greater							Total Unrealized Losses

(In millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Total Fair Value


September 30, 2009

Mutual funds	$	—	$	—		$	40	$	(6	)	$	40	$	(6	)
U.S. government and agency securities		252		(1	)		—		—			252		(1	)
Foreign government bonds		—		—			667		(1	)		667		(1	)
Mortgage-backed securities		744		(4	)		—		—			744		(4	)
Corporate notes and bonds		299		(2	)		262		(15	)		561		(17	)
Common and preferred stock		579		(42	)		176		(39	)		755		(81	)

Total	$	1,874	$	(49	)	$	1,145	$	(61	)	$	3,019	$	(110	)


	Less than 12 Months					12 Months or Greater							Total Unrealized Losses

(In millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Total Fair Value


June 30, 2009

Mutual funds	$	3	$	(1	)	$	77	$	(24	)	$	80	$	(25	)
U.S. government and agency securities		4,033		(5	)		—		—			4,033		(5	)
Foreign government bonds		1,444		(3	)		669		(1	)		2,113		(4	)
Mortgage-backed securities		503		(16	)		—		—			503		(16	)
Corporate notes and bonds		713		(10	)		504		(42	)		1,217		(52	)
Municipal securities		16		(1	)		—		—			16		(1	)
Common and preferred stock		1,154		(135	)		120		(47	)		1,274		(182	)

Total	$	7,866	$	(171	)	$	1,370	$	(114	)	$	9,236	$	(285	)

At September 30, 2009 and June 30, 2009, the recorded bases and estimated fair values of common and preferred stock and other investments that are restricted for more than one year or are not publicly traded were $205 million and $204 million, respectively. The estimated fair values are based on publicly available market information or other estimates determined by management. Unrealized losses on fixed-income securities are primarily attributable to changes in interest rates. Unrealized losses on domestic and international equities are due to market price movements. Management does not believe any remaining unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence as of September 30, 2009.

Debt Investment Maturities


(In millions)	Cost Basis		Estimated Fair Value


Due in one year or less	$	5,854	$	5,867
Due after one year through five years		16,135		16,456
Due after five years through 10 years		2,637		2,755
Due after 10 years		4,493		4,602

Total	$	29,119	$	29,680

- Definition

This item represents the entire disclosure related to Available-for-sale Securities which consist of all investments in certain debt and equity securities neither classified as trading or held-to-maturity securities. A debt security represents a creditor relationship with an enterprise. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities which are categorized as Available-for-sale.

+ References+ Details

NOTE 5 DERIVATIVES

3 Months Ended

Sep. 30, 2009

Notes to Financial Statements [Abstract]

NOTE 5 DERIVATIVES

We use derivative instruments to manage risks related to foreign currencies, equity prices, interest rates, and credit; to enhance investment returns; and to facilitate portfolio diversification. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment. All notional amounts presented below are measured in U.S. currency equivalents.

Foreign Currency

Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency hedge positions. Options and forward contracts are used to hedge a portion of forecasted international revenue for up to three years in the future and are designated as cash-flow hedging instruments. Principal currencies hedged include the euro, Japanese yen, British pound, and Canadian dollar. As of September 30, 2009, the total notional amount of such foreign exchange contracts was $8.7 billion. Foreign currency risks related to certain non-U.S. dollar denominated securities are hedged using foreign exchange forward contracts that are designated as fair-value hedging instruments. As of September 30, 2009, the total notional amount of these foreign exchange contracts sold was $3.7 billion. Certain options and forwards not designated as hedging instruments are also used to manage the variability in exchange rates on accounts receivable, cash, and intercompany positions, and to manage other foreign currency exposures. As of September 30, 2009, the total notional amounts of these foreign exchange contracts purchased and sold were $2.6 billion and $2.2 billion, respectively.

Equity

Securities held in our equity and other investments portfolio are subject to market price risk. Market price risk is managed relative to broad-based global and domestic equity indices using certain convertible preferred investments, options, futures, and swap contracts not designated as hedging instruments. From time to time, to hedge our price risk, we may use and designate equity derivatives as hedging instruments, including puts, calls, swaps, and forwards. As of September 30, 2009, the total notional amounts of designated and non-designated equity contracts purchased and sold were immaterial.

Interest Rate

Securities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We manage the average maturity of our fixed-income portfolio to achieve economic returns that correlate to certain broad-based fixed-income indices using exchange-traded option and futures contracts and over-the-counter swap and option contracts, none of which are designated as hedging instruments. As of September 30, 2009, the total notional amount of fixed-interest rate contracts purchased and sold were $1.6 billion and $946 million, respectively. In addition, we use “To Be Announced” forward purchase commitments of mortgage-backed assets to gain exposure to agency mortgage-backed securities. These meet the definition of a derivative instrument in cases where physical delivery of the assets is not taken at the earliest available delivery date. As of September 30, 2009, the total notional derivative amount of mortgage contracts purchased was $1.0 billion.

Credit

Our fixed-income portfolio is diversified and consists primarily of investment-grade securities. We use credit default swap contracts, not designated as hedging instruments, to manage credit exposures relative to broad-based indices and to facilitate portfolio diversification. We use credit default swaps as they are a low cost method of managing exposure to individual credit risks or groups of credit risks. As of September 30, 2009, the total notional amounts of credit contracts purchased and sold were immaterial.

Commodity

We use broad-based commodity exposures to enhance portfolio returns and to facilitate portfolio diversification. We use swap and futures contracts, not designated as hedging instruments, to generate and manage exposures to broad-based commodity indices. We use derivatives on commodities as they are low-cost alternatives to the purchase and storage of a variety of commodities, including, but not limited to, precious metals, energy, and grain. As of September 30, 2009, the total notional amounts of commodity contracts purchased and sold were $567 million and $27 million, respectively.

Credit-Risk-Related Contingent Features

Certain of our counterparty agreements for derivative instruments contain provisions that require our issued and outstanding long-term unsecured debt to maintain an investment grade credit rating and require us to maintain a minimum liquidity of $1.0 billion. To the extent we fail to meet these requirements, we will be required to post collateral, similar to the standard convention related to over-the-counter derivatives. As of September 30, 2009, our long-term unsecured debt rating was AAA, and cash investments were in excess of $1.0 billion. As a result, no collateral is required to be posted.

Fair Values of Derivative Instruments

Following are the gross fair values of derivative instruments held at September 30, 2009, excluding the impact of netting derivative assets and liabilities when a legally enforceable master netting agreement exists and fair value adjustments related to our own credit risk and counterparty credit risk:


(In millions)	Foreign Exchange Contracts			Equity Contracts			Interest Rate Contracts			Credit Contracts			Commodity Contracts			Total Derivatives


Assets
Derivatives not designated as hedging instruments:
Short-term investments	$	10		$	101		$	41		$	12		$	7		$	171
Other current assets		81			—			—			—			—			81

Total	$	91		$	101		$	41		$	12		$	7		$	252
Derivatives designated as hedging instruments:
Short-term investments	$	6		$	—		$	—		$	—		$	—		$	6
Other current assets		258			—			—			—			—			258
Equity and other investments		—			—			—			—			—			—

Total	$	264		$	—		$	—		$	—		$	—		$	264

Total assets	$	355		$	101		$	41		$	12		$	7		$	516

Liabilities
Derivatives not designated as hedging instruments:
Other current liabilities	$	(79	)	$	(2	)	$	(25	)	$	(49	)	$	(5	)	$	(160	)
Derivatives designated as hedging instruments:
Other current liabilities	$	(251	)	$	—		$	—		$	—		$	—		$	(251	)

Total liabilities	$	(330	)	$	(2	)	$	(25	)	$	(49	)	$	(5	)	$	(411	)

See also Note 4 – Investments and Note 6 – Fair Value Measurements.

Fair-Value Hedges

For a derivative instrument designated as a fair-value hedge, the gain (loss) is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributed to the risk being hedged. For options designated as fair-value hedges, changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in earnings.

During the three months ended September 30, 2009, we recognized in other income (expense) the following gains (losses) on foreign exchange contracts designated as fair value hedges (our only fair value hedges during the period) and their related hedged items:


(In millions)


Derivatives	$	(193	)
Hedged items		188

Total	$	(5	)

Cash-Flow Hedges

For a derivative instrument designated as a cash-flow hedge, the effective portion of the derivative’s gain (loss) is initially reported as a component of other comprehensive income (“OCI”) and is subsequently recognized in earnings when the hedged exposure is recognized in earnings. For options designated as cash-flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in earnings. Gains (losses) on derivatives representing either hedge components excluded from the assessment of effectiveness or hedge ineffectiveness are recognized in earnings.

During the three months ended September 30, 2009, we recognized the following gains (losses) related to foreign exchange contracts designated as cash flow hedges (our only cash flow hedges during the period):


(In millions)


Effective portion
Loss recognized in OCI, net of tax effect of $(112)	$	(209	)
Gain reclassified from accumulated OCI into revenue	$	169
Amount excluded from effectiveness assessment and ineffective portion
Loss recognized in other income (expense)	$	(40	)

We estimate that $169 million of net derivative gains included in OCI will be reclassified into earnings within the next 12 months. No significant amounts of gains (losses) were reclassified from OCI into earnings as a result of forecasted transactions that failed to occur during the three months ended September 30, 2009.

Non-Designated Derivatives

Gains (losses) from changes in fair values of derivatives that are not designated as hedges are recognized in other income (expense). Other than those derivatives entered into for investment purposes, such as commodity contracts, the gains (losses) below are generally economically offset by unrealized gains (losses) in the underlying available-for-sale securities, which are recorded as a component of OCI until the securities are sold or other-than-temporarily impaired, at which time the amounts are moved from OCI into other income (expense).

During the three months ended September 30, 2009, we recognized the following gains related to derivatives that are not designated as hedges:


(In millions)


Foreign exchange contracts	$	43
Equity contracts		9
Interest-rate contracts		3
Credit contracts		9
Commodity contracts		15

Total	$	79

Gains (losses) on derivatives presented in income statement line items other than other income (expense) were immaterial for the three months ended September 30, 2009, and have been excluded from the table above.

NOTE 6 FAIR VALUE MEASUREMENTS

3 Months Ended

Sep. 30, 2009

Notes to Financial Statements [Abstract]

NOTE 6 FAIR VALUE MEASUREMENTS

We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

•

Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. Our Level 1 non-derivative investments primarily include domestic and international equities, U.S. treasuries, exchange-traded mutual funds, and agency securities. Our Level 1 derivative assets and liabilities include those traded on exchanges.

•

Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities. Our Level 2 non-derivative investments consist primarily of corporate notes and bonds, foreign government bonds, mortgage-backed securities, commercial paper, and certain agency securities. Our Level 2 derivative assets and liabilities primarily include certain over-the-counter options, futures, and swap contracts.

•

Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 non-derivative assets primarily comprise investments in certain corporate bonds. We value these corporate bonds using internally developed valuation models, inputs to which include interest rate curves, credit spreads, stock prices, and volatilities. Unobservable inputs used in these models are significant to the fair values of the investments. Our Level 3 derivative assets and liabilities primarily comprise derivatives for foreign equities. In certain cases, market-based observable inputs are not available and we use management judgment to develop assumptions to determine fair value for these derivatives.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair values of our financial instruments that are measured at fair value on a recurring basis:


(In millions)		Level 1		Level 2		Level 3		Gross Fair Value		Netting	⁽¹⁾		Net Fair Value


September 30, 2009

Assets
Mutual funds	$	1,320	$	—	$	—	$	1,320	$	—		$	1,320
Commercial paper		—		1,721		—		1,721		—			1,721
Certificates of deposit		—		1,926		—		1,926		—			1,926
U.S. government and agency securities		9,575		5,932		—		15,507		—			15,507
Foreign government bonds		468		3,269		—		3,737		—			3,737
Mortgage-backed securities		—		4,381		—		4,381		—			4,381
Corporate notes and bonds		—		5,288		180		5,468		—			5,468
Municipal securities		—		440		—		440		—			440
Common and preferred stock		5,275		39		5		5,319		—			5,319
Derivatives		13		500		3		516		(329	)		187

Total	$	16,651	$	23,496	$	188	$	40,335	$	(329	)	$	40,006

Liabilities
Derivatives	$	12	$	399	$	—	$	411	$	(328	)	$	83


(In millions)		Level 1		Level 2		Level 3		Gross Fair Value		Netting	⁽¹⁾		Net Fair Value


June 30, 2009

Assets
Mutual funds	$	982	$	—	$	—	$	982	$	—		$	982
Commercial paper		—		2,601		—		2,601		—			2,601
Certificates of deposit		—		555		—		555		—			555
U.S. government and agency securities		7,134		6,105		—		13,239		—			13,239
Foreign government bonds		501		3,022		—		3,523		—			3,523
Mortgage-backed securities		—		3,593		—		3,593		—			3,593
Corporate notes and bonds		—		4,073		253		4,326		—			4,326
Municipal securities		—		256		—		256		—			256
Common and preferred stock		4,218		28		5		4,251		—			4,251
Derivatives		5		623		5		633		(235	)		398

Total	$	12,840	$	20,856	$	263	$	33,959	$	(235	)	$	33,724

Liabilities
Derivatives	$	5	$	344	$	—	$	349	$	(231	)	$	118

(1)	This table includes the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement exists. These amounts also include fair value adjustments related to our own credit risk and counterparty credit risk.

Changes in Financial Instruments Measured at Level 3 Fair Value on a Recurring Basis

The following tables present the changes during the three months ended September 30, 2009 and 2008 in our Level 3 financial instruments that are measured at fair value on a recurring basis. The majority of these instruments consist of investment securities classified as available-for-sale with changes in fair value included in other comprehensive income.


(In millions)	Corporate Notes and Bonds			Common and Preferred Stock		Derivative Assets			Total


Three Months Ended September 30, 2009

Balance, beginning of period	$	253		$	5	$	5		$	263
Total realized and unrealized gains (losses):
Included in other income (expense)		1			—		(2	)		(1	)
Included in other comprehensive income		(74	)		—		—			(74	)
Purchases, issuances, and settlements		—			—		—			—
Transfers in and out of Level 3		—			—		—			—

Balance, end of period	$	180		$	5	$	3		$	188

Change in unrealized gains (losses) included in other income (expense) related to assets held as of September 30, 2009	$	1		$	—	$	(2	)	$	(1	)


(In millions)	Corporate Notes and Bonds			Common and Preferred Stock			Derivative Assets			Total


Three Months Ended September 30, 2008

Balance, beginning of period	$	138		$	8		$	71		$	217
Total realized and unrealized gains (losses):
Included in other income (expense)		(9	)		(4	)		48			35
Included in other comprehensive income		(29	)		—			—			(29	)
Purchases, issuances, and settlements		—			—			(104	)		(104	)
Transfers in and out of Level 3		11			—			—			11

Balance, end of period	$	111		$	4		$	15		$	130

Change in unrealized gains (losses) included in other income (expense) related to assets held as of September 30, 2008	$	(9	)	$	(3	)	$	1		$	(11	)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We measure certain assets, including our cost and equity method investments, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. The fair values of our investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections.

An impairment charge is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary. During the three months ended September 30, 2009 and 2008, we did not record any other-than-temporary impairments on those assets required to be measured at fair value on a non-recurring basis.

- Definition

This element represents the disclosure related to the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods.

+ References+ Details

NOTE 9 GOODWILL

3 Months Ended

Sep. 30, 2009

Notes to Financial Statements [Abstract]

NOTE 9 GOODWILL

Following are details of the changes in our goodwill balances during the three months ended September 30, 2009:


(In millions)	Balance		Acquisitions		Purchase Accounting Adjustments and Other			Balance


June 30, 2009				September 30, 2009

Windows & Windows Live Division	$	77	$	—	$	—		$	77
Server and Tools		1,038		33		(1	)		1,070
Online Services Division		6,657		—		(24	)		6,633
Microsoft Business Division		3,927		3		68			3,998
Entertainment and Devices Division		804		—		—			804

Total	$	12,503	$	36	$	43		$	12,582

None of the amounts recorded as goodwill are expected to be deductible for tax purposes. The measurement period for purchase price allocations ends as soon as information on the facts and circumstances becomes available, but does not exceed 12 months. Any change in the fair value of the net assets of the acquired companies changes the amount of the purchase price allocable to goodwill. Adjustments in the purchase price allocation may require a recasting of the amounts allocated to goodwill retroactive to the period in which the acquisition occurred. Any change in the goodwill amounts resulting from foreign currency translations are presented as “other” in the table above.

In connection with the planned disposal of Razorfish, we performed an interim impairment analysis of our Online Services Division goodwill balance during the first quarter of fiscal year 2010. No impairment of goodwill was identified.

NOTE 10 INTANGIBLE ASSETS

3 Months Ended

Sep. 30, 2009

Notes to Financial Statements [Abstract]

NOTE 10 INTANGIBLE ASSETS

The components of intangible assets, all of which are finite-lived, were as follows:


(In millions)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount


September 30, 2009									June 30, 2009

Contract-based	$	1,087	$	(869	)	$	218	$	1,087	$	(855	)	$	232
Technology-based		2,091		(1,188	)		903		2,033		(1,090	)		943
Marketing-related		184		(105	)		79		188		(97	)		91
Customer-related		721		(268	)		453		732		(239	)		493

Total	$	4,083	$	(2,430	)	$	1,653	$	4,040	$	(2,281	)	$	1,759

We generally amortize acquired intangibles on a straight-line basis over their estimated weighted average lives. Intangible assets amortization expense was $149 million for the three months ended September 30, 2009 as compared with $140 million for the three months ended September 30, 2008. The following table outlines the estimated future amortization expense related to intangible assets held at September 30, 2009:


(In millions)


Year Ending June 30,

2010 (excluding the three months ended September 30, 2009)	$	435
2011		515
2012		459
2013		192
2014 and thereafter		52

Total	$	1,653

NOTE 11 DEBT	3 Months Ended
NOTE 11 DEBT	Sep. 30, 2009
Notes to Financial Statements [Abstract]
NOTE 11 DEBT	NOTE 11 DEBT In September 2008, our Board of Directors authorized debt financings of up to $6.0 billion. Our initial commercial paper program provided for the issuance and sale of up to $2.0 billion. Subsequent to the issuance of our long-term debt in May 2009, we increased the commercial paper program and, during the current quarter, issued an additional $250 million of commercial paper. As of September 30, 2009, we had $2.25 billion of commercial paper and $3.75 billion of long-term debt issued and outstanding. Short-term Debt As of September 30, 2009, our $2.25 billion of commercial paper issued and outstanding had a weighted average interest rate, including issuance costs, of 0.18% and maturities of 49 to 127 days. The estimated fair value of this commercial paper approximates its carrying value. We also had two credit facilities aggregating $3.0 billion with no amounts drawn against them as of September 30, 2009. These facilities serve as a back-up for our commercial paper program. Our $2.0 billion and $1.0 billion credit facilities expire on November 6, 2009 and March 12, 2010, respectively. As of September 30, 2009, we were in compliance with the financial covenant in both credit agreements, which requires a coverage ratio maintained of at least three times earnings before interest, taxes, depreciation, and amortization to interest expense. Long-term Debt As of September 30, 2009, the total carrying value and estimated fair value of our long-term debt were $3.75 billion and $3.81 billion, respectively. The estimated fair value is based on quoted prices for our publicly-traded debt as of September 30, 2009.

NOTE 13 UNEARNED REVENUE

3 Months Ended

Sep. 30, 2009

Notes to Financial Statements [Abstract]

NOTE 13 UNEARNED REVENUE

The components of unearned revenue were as follows:


(In millions)


September 30, 2009				June 30, 2009

Volume licensing programs	$	10,527	$	11,350
Undelivered elements		2,452		1,083
Other		1,789		1,851

Total	$	14,768	$	14,284

Unearned revenue by segment was as follows:


(In millions)


September 30, 2009				June 30, 2009

Windows & Windows Live Division	$	3,638	$	2,345
Server and Tools		4,424		4,732
Microsoft Business Division		5,920		6,508
Other segments		786		699

Total	$	14,768	$	14,284

NOTE 15 CONTINGENCIES	3 Months Ended
NOTE 15 CONTINGENCIES	Sep. 30, 2009
Notes to Financial Statements [Abstract]
NOTE 15 CONTINGENCIES	NOTE 15 CONTINGENCIES Government Competition Law Matters In March 2004, the European Commission issued a competition law decision that, among other things, ordered us to license certain Windows server protocol technology to our competitors. In March 2007, the European Commission issued a statement of objections claiming that the pricing terms we proposed for licensing the technology as required by the March 2004 decision were “not reasonable.” Following additional steps we took to address these concerns, the Commission announced on October 22, 2007 that we were in compliance with the March 2004 decision and that no further penalty should accrue after that date. On February 27, 2008, the Commission issued a fine of $1.4 billion (€899 million) relating to the period prior to October 22, 2007. In May 2008, we filed an application with the European Court of First Instance to annul the February 2008 fine. We paid the $1.4 billion (€899 million) fine in June 2008, pending the outcome of the appeal. In January 2008 the Commission opened a competition law investigation relating to the inclusion of various capabilities in our Windows operating system software, including Web browsing software. The investigation was precipitated by a complaint filed with the Commission by Opera Software ASA, a firm that offers Web browsing software. On January 15, 2009, the European Commission issued a statement of objections expressing the Commission’s preliminary view that the inclusion of Internet Explorer in Windows since 1996 has violated European competition law. According to the statement of objections, other browsers are foreclosed from competing because Windows includes Internet Explorer. On October 7, 2009, the Commission announced its preliminary view that a set of commitments offered by Microsoft would resolve the Commission’s competition law concerns. These commitments broadly ensure that computer manufacturers will remain free to install any browser on the PCs they ship and they provide for a Web browser ballot mechanism so that end users throughout Europe are offered a choice of browsers. The Commission stated that it intends to issue a decision making these commitments legally binding, subject to the results of a of a 30-day public comment period. In January 2008 the Commission also opened a competition law investigation that relates primarily to interoperability with respect to our Microsoft Office family of products. This investigation resulted from complaints filed with the Commission by a trade association of Microsoft’s competitors. Microsoft has made a number of proposals to address the Commission’s competition law concerns in this area. The Commission also indicated in its October 7, 2009 statement that it may consider the commitments described above to provide a sufficient basis to resolve these competition law concerns. We are subject to a Consent Decree and Final Judgment (“Final Judgments”) that resolved lawsuits brought by the U.S. Department of Justice, 18 states, and the District of Columbia in two separate actions. The Final Judgments imposed various constraints on our Windows operating system businesses. Originally, the Final Judgments were scheduled to expire in November 2007. In 2006, we voluntarily agreed to extend certain elements of the Final Judgments to November 2009. The U.S. Department of Justice and other states advised the Court that they would not seek any extension of the Final Judgments to which they are party. In January 2008, the court issued a decision granting the states’ motion to extend these additional provisions of the Final Judgments until November 2009. On April 16, 2009, we agreed with the Department of Justice and the states, respectively, to extend the Final Judgments to May 2011, and submitted to the U.S. District Court for the District of Columbia joint motions for this extension. In April 2009, the Court entered an order approving the extension. In other ongoing investigations, various foreign governments and several state attorneys general have requested information from us concerning competition, privacy, and security issues. Antitrust, Unfair Competition, and Overcharge Class Actions A large number of antitrust and unfair competition class action lawsuits were filed against us in various state, federal, and Canadian courts on behalf of various classes of direct and indirect purchasers of our PC operating system and certain other software products. We obtained dismissals of damages claims of indirect purchasers under federal law and in 15 states. Courts refused to certify classes in two additional states. We have reached agreements to settle all claims that have been made to date in 19 states and the District of Columbia. Under the settlements, generally class members can obtain vouchers that entitle them to be reimbursed for purchases of a wide variety of platform-neutral computer hardware and software. The total value of vouchers that we may issue varies by state. We will make available to certain schools a percentage of those vouchers that are not issued or claimed (one-half to two-thirds depending on the state). The total value of vouchers we ultimately issue will depend on the number of class members who make claims and are issued vouchers. The maximum value of vouchers to be issued is approximately $2.7 billion. The actual costs of these settlements will be less than that maximum amount, depending on the number of class members and schools that are issued and redeem vouchers. The settlements in all states except Arizona have received final court approval. Cases in Canada have not been settled. We estimate the total cost to resolve all of the overcharge class action cases will range between $1.8 billion and $2.1 billion. The actual cost depends on factors such as the claim rate, the quantity and mix of products for which claims are made, the number of eligible class members who ultimately use the vouchers, the nature of hardware and software that is acquired using the vouchers, and the cost of administering the claims. At September 30, 2009, we have recorded a liability related to these claims of approximately $800 million, which reflects our estimated exposure of $1.8 billion less payments made to date of approximately $1.0 billion mostly for vouchers, legal fees, and administrative expenses. Other Antitrust Litigation and Claims In November 2004, Novell, Inc. filed a complaint in U.S. District Court, asserting antitrust and unfair competition claims against us related to Novell’s ownership of WordPerfect and other productivity applications during the period between June 1994 and March 1996. This case was transferred to Maryland. In June 2005, the trial court granted our motion to dismiss four of six claims of the complaint. Both parties appealed, and in October 2007, the court of appeals affirmed the decision of the trial court, and remanded the case to that court for further proceedings. Fact discovery has closed and summary judgment motions were filed in October 2009. Patent and Intellectual Property Claims In 2003 we filed an action in U.S. District Court in California seeking a declaratory judgment that we do not infringe certain Alcatel-Lucent patents (although this action began before the merger of Alcatel and Lucent in 2006, for simplicity we refer to the post-merger entity of Alcatel-Lucent). In April 2008, a jury returned a verdict in Alcatel-Lucent’s favor in a trial on a consolidated group of one video and three user interface patents. The jury concluded that we had infringed two user interface patents and awarded $367 million in damages. In June 2008, the trial judge increased the amount of damages to $512 million to include $145 million of interest. We appealed that award to the Federal Circuit. In December 2008, we entered into a settlement agreement resolving all other litigation pending between Microsoft and Alcatel-Lucent, leaving approximately $500 million remaining in dispute. In April 2009, the U.S. Patent and Trademark Office, after a reexamination of the remaining patent in dispute, determined that the patent was invalid and Alcatel-Lucent has appealed that ruling. On September 11, 2009, the United States Court of Appeals for the Federal Circuit affirmed the liability award but vacated the verdict and remanded the case to the trial court for a re-trial of the damages ruling, indicating the damages previously awarded were too high. In October 2003, Uniloc USA Inc., a subsidiary of a Singapore-based security technology company, filed a patent infringement suit in U.S. District Court in Rhode Island, claiming that product activation technology in Windows XP and certain other Microsoft programs violated a Uniloc patent. After we obtained a favorable summary judgment that we did not infringe any of the claims of this patent, the court of appeals vacated the trial court decision and remanded the case for trial. In April 2009, the jury returned a $388 million verdict against us, including a finding of willful infringement. On September 29, 2009, the district court judge overturned the jury verdict, ruling that the evidence did not support the jury’s finding that Microsoft infringed the patent. In March 2007, i4i Limited Partnership, based in Canada, sued Microsoft in U.S. District Court in Texas, claiming that certain custom XML technology in Word 2003 and 2007 infringed i4i’s patent. In May 2009, a jury returned a verdict against us, finding damages of $200 million and that we willfully infringed the patent. In August 2009, the court denied our post-trial motions and also awarded enhanced damages of $40 million, prejudgment interest of $37 million and issued a permanent injunction prohibiting additional distribution of the allegedly infringing technology. The appellate court stayed the injunction pending our appeal. There are over 50 other patent infringement cases pending against Microsoft, 10 of which are set for trial in fiscal year 2010. These include a lawsuit filed by JuxtaComm Technologies, Inc. against us and other defendants in U.S. District Court in Texas. JuxtaComm claims that technologies in several Microsoft products including SQL Server, Visual Studio, Visio, and .Net Framework infringe a JuxtaComm patent relating to data integration. Trial has been scheduled for November 2009. Another lawsuit was filed against Microsoft by VirnetX Inc. in U.S. District Court in Texas in which VirnetX asserts that various Microsoft products including Windows client and server operating systems software and communications software infringe patents relating to certain secure Internet communications. Trial is scheduled for March 2010. Other We also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact on our financial position, our results of operations, or our cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. As of September 30, 2009, we had accrued aggregate liabilities of approximately $700 million in other current liabilities and approximately $400 million in other long-term liabilities for all of the contingent matters described in this note. While we intend to vigorously defend these matters, there exists the possibility of adverse outcomes that we estimate could be up to $1.9 billion in aggregate beyond recorded amounts. The foregoing amount does not include the January 15, 2009 European Commission statement of objections, the outcome and range of which is not reasonably estimable. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial position, results of operations, and cash flows for the period in which the effects become reasonably estimable.

NOTE 17 STOCKHOLDERS' EQUITY

3 Months Ended

Sep. 30, 2009

Notes to Financial Statements [Abstract]

NOTE 17 STOCKHOLDERS' EQUITY

NOTE 17 STOCKHOLDERS’ EQUITY

Share Repurchases

We repurchased the following shares of common stock during the periods presented:


(In millions)


Three Months Ended September 30,	2009		2008

Shares of common stock repurchased		58		223
Value of common stock repurchased	$	1,445	$	5,966

We repurchased all shares with cash resources. As of September 30, 2009, approximately $33.1 billion remained of our $40.0 billion repurchase program that we announced on September 22, 2008. The repurchase program expires September 30, 2013 but may be suspended or discontinued at any time without notice.

Dividends

Our Board of Directors declared the following dividends during the periods presented:


Declaration Date	Per Share Dividend		Record Date	Total Amount	Payment Date

				(in millions)

September 18, 2009	$	0.13	November 19, 2009	$ 1,157	December 10, 2009
September 19, 2008	$	0.13	November 20, 2008	$ 1,157	December 11, 2008

The estimate of the amount to be paid as a result of the September 18, 2009 declaration was included in other current liabilities as of September 30, 2009.

- Definition

Disclosures related to accounts comprising shareholders' equity, including other comprehensive income. Includes: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables; effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

+ References+ Details

NOTE 18 SEGMENT INFORMATION

3 Months Ended

Sep. 30, 2009

Notes to Financial Statements [Abstract]

NOTE 18 SEGMENT INFORMATION

In its operation of the business, management reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with U.S. GAAP. Our five segments are: Windows & Windows Live Division; Server and Tools; Online Services Division; Microsoft Business Division; and Entertainment and Devices Division. We have recast certain prior period amounts within this note to conform to the way we internally managed and monitored segment performance during the current period, including moving Windows Live from Online Services Division to Windows & Windows Live Division, Mobile Services from Online Services Division to Entertainment and Devices Division, and Razorfish from Online Services Division to Corporate.

Segment revenue and operating income (loss) were as follows during the periods presented:


(In millions)


Three Months Ended September 30,	2009			2008

Revenue
Windows & Windows Live Division	$	3,981		$	4,116
Server and Tools		3,437			3,438
Online Services Division		490			510
Microsoft Business Division		4,406			4,918
Entertainment and Devices Division		1,891			1,893
Unallocated and other		(1,285	)		186

Consolidated	$	12,920		$	15,061

Operating income (loss)
Windows & Windows Live Division	$	2,811		$	2,869
Server and Tools		1,244			1,010
Online Services Division		(490	)		(332	)
Microsoft Business Division		2,840			3,112
Entertainment and Devices Division		294			134
Reconciling amounts		(2,217	)		(794	)

Consolidated	$	4,482		$	5,999

Because of our integrated business structure, operating costs included in one segment may benefit other segments, and therefore these segments are not designed to measure operating income or loss directly related to the products included in each segment. Inter-segment cost commissions are estimated by management and used to compensate or charge each segment for such shared costs and to incent shared efforts. Management will continually evaluate the alignment of product development organizations, sales organizations, and inter-segment commissions for segment reporting purposes, which may result in changes to segment allocations in future periods.

Assets are not allocated to segments for internal reporting presentations. A portion of amortization and depreciation is included with various other costs in an overhead allocation to each segment and it is impracticable for us to separately identify the amount of amortization and depreciation by segment that is included in the measure of segment profit or loss.

Reconciling amounts include adjustments to conform with U.S. GAAP and corporate-level activity not specifically attributed to a segment. Significant internal accounting policies that differ from U.S. GAAP relate to revenue recognition, income statement classification, and accelerated depreciation and amortization of stock-based awards. In addition, certain revenue and expenses are excluded from segments or included in corporate-level activity, including certain legal settlements, accruals for legal contingencies, and accruals for employee severance. For the three months ended September 30, 2009, reconciling amounts include revenue deferrals related to the Windows 7 Upgrade Option and sales of Windows 7 to original equipment manufacturers and retailers before general availability.

Significant reconciling items were as follows:


(In millions)


Three Months Ended September 30,	2009			2008

Corporate-level activity ⁽¹⁾	$	(959	)	$	(1,127	)
Stock-based compensation		120			180
Revenue reconciling amounts		(1,366	)		187
Other		(12	)		(34	)

Total	$	(2,217	)	$	(794	)

(1)	Corporate-level activity excludes stock-based compensation and revenue reconciling amounts presented separately in those line items.

Entity Information	3 Months Ended
Entity Information	Sep. 30, 2009	Oct. 19, 2009
Trading Symbol	MSFT
Entity Registrant Name	MICROSOFT CORP
Entity Central Index Key	0000789019
Current Fiscal Year End Date	--06-30
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		8,879,121,378

NOTE 8 ACQUISITIONS	3 Months Ended
NOTE 8 ACQUISITIONS	Sep. 30, 2009
Notes to Financial Statements [Abstract]
NOTE 8 ACQUISITIONS	NOTE 8 ACQUISITIONS We acquired two entities during the three months ended September 30, 2009, for total consideration of $46 million, substantially all of which was paid in cash. These entities have been consolidated into our results of operations since their respective acquisition dates. Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the aggregate, were not material to our consolidated results of operations.

NOTE 12 INCOME TAXES	3 Months Ended
NOTE 12 INCOME TAXES	Sep. 30, 2009
Notes to Financial Statements [Abstract]
NOTE 12 INCOME TAXES	NOTE 12 INCOME TAXES Our effective tax rates were 25% and 27% for the three months ended September 30, 2009 and 2008, respectively. The fiscal year 2010 rate reflects a higher mix of foreign earnings taxed at lower rates. Tax contingencies and other tax liabilities were $5.8 billion as of September 30, 2009 and $5.5 billion as of June 30, 2009, and were included in other long-term liabilities.

NOTE 19 SUBSEQUENT EVENT	3 Months Ended
NOTE 19 SUBSEQUENT EVENT	Sep. 30, 2009
Notes to Financial Statements [Abstract]
NOTE 19 SUBSEQUENT EVENT	NOTE 19 SUBSEQUENT EVENT On October 13, 2009, we closed the sale of Razorfish. This disposal will not materially affect our consolidated results of operations, financial position, or cash flows.

Document Information	3 Months Ended
Document Information	Sep. 30, 2009
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2009