Short-term investments (including securities loaned of $982 and $62)

$ 5,505

^[1]

$ 4,023

31,283

^[1]

37,229

Total cash, cash equivalents, and short-term investments

36,788

^[1]

41,252

Accounts receivable, net of allowance for doubtful accounts of $317 and $375

13,014

^[1]

12,874

Inventories

740

^[1]

861

Deferred income taxes

2,184

^[1]

2,548

Other

2,950

^[1]

2,149

Total current assets

55,676

^[1]

59,684

Property and equipment, net of accumulated depreciation of $9,279 and $8,629

7,630

^[1]

7,799

Short-term unearned revenue

7,754

^[1]

10,022

Goodwill

12,394

^[1]

12,502

Intangible assets, net

1,158

^[1]

992

Other long-term assets

1,501

^[1]

1,307

Total assets

86,113

^[1]

92,306

Current liabilities:

Accounts payable

4,025

^[1]

3,863

Short-term debt

1,000

^[1]

Accrued compensation

3,283

^[1]

2,402

Income taxes

1,074

^[1]

1,439

13,652

^[1]

12,063

Securities lending payable

182

^[1]

1,355

Other

2,931

^[1]

3,190

Total current liabilities

26,147

^[1]

24,312

Long-term debt

4,939

^[1]

9,671

Long-term unearned revenue

1,178

^[1]

1,354

Deferred income taxes

229

^[1]

826

Other long-term liabilities

7,445

^[1]

7,662

Total liabilities

39,938

^[1]

43,825

Commitments and contingencies

^[1]

Stockholders' equity:

Common stock and paid-in capital-shares authorized 24,000; outstanding 8,403 and 8,668

62,856

^[1]

61,646

Retained deficit, including accumulated other comprehensive income of $1,697 and $1,055

(16,681)

^[1]

(13,165)

Total stockholders' equity

46,175

^[1]

48,481

Total liabilities and stockholders' equity

$ 86,113

^[1]

$ 92,306

[1]	Derived from audited financial statements.

BALANCE SHEETS (Parenthetical) (USD $)
In Millions, unless otherwise specified

Dec. 31, 2010

Jun. 30, 2010

Short-term investments, securities loaned

$ 982

$ 62

^[1]

Accounts receivable, allowance for doubtful accounts

317

375

^[1]

Property and equipment, accumulated depreciation

9,279

8,629

^[1]

Common stock, shares authorized

24,000

^[1]

Common stock, outstanding

8,403

8,668

^[1]

Retained deficit, accumulated other comprehensive income

$ 1,697

$ 1,055

^[1]

[1]	Derived from audited financial statements.

CASH FLOWS STATEMENTS (USD $)
In Millions, unless otherwise specified

3 Months Ended

6 Months Ended

Dec. 31, 2010

Dec. 31, 2009

Dec. 31, 2010

Dec. 31, 2009

Operations

Adjustments to reconcile net income to net cash from operations:

$ 6,634

$ 6,662

$ 12,044

$ 10,236

Depreciation, amortization, and other

663

615

1,357

1,261

Stock-based compensation expense

553

485

1,081

928

Net recognized gains on investments and derivatives

(226)

(188)

(255)

(254)

Excess tax benefits from stock-based compensation

(4)

(15)

(9)

(24)

Deferred income taxes

(117)

550

(265)

504

Deferral of unearned revenue

6,834

6,926

12,715

13,605

Recognition of unearned revenue

(7,301)

(9,126)

(14,163)

(15,363)

Changes in operating assets and liabilities:

Accounts receivable

(3,270)

(2,789)

404

(41)

Inventories

380

558

(88)

139

Other current assets

(77)

686

131

451

Other long-term assets

118

180

(62)

Accounts payable

216

(184)

(33)

Other current liabilities

(500)

282

(1,411)

(921)

Other long-term liabilities

283

304

843

650

Net cash from operations

4,186

4,969

12,380

11,076

Financing

Short-term debt repayments, maturities of 90 days or less, net

(1,000)

(475)

(186)

(97)

Proceeds from issuance of debt, maturities longer than 90 days

1,046

4,721

1,741

Repayments of debt, maturities longer than 90 days

(573)

(814)

(1,396)

660

729

837

977

Common stock cash dividends paid

(5,052)

(3,867)

(9,451)

(5,407)

(1,363)

(1,152)

(2,481)

(2,309)

Excess tax benefits from stock-based compensation

Other

(25)

Net cash used in financing

(6,751)

(4,277)

(7,390)

(6,467)

Investing

Additions to property and equipment

(491)

(376)

(1,055)

(811)

Acquisition of companies, net of cash acquired

(69)

(63)

(69)

(102)

Purchases of investments

(5,896)

(4,287)

(13,313)

(14,777)

Maturities of investments

1,836

1,896

2,706

5,394

Sales of investments

2,603

3,361

4,030

7,778

Securities lending payable

447

(623)

1,174

1,227

Net cash used in investing

(1,570)

(92)

(6,527)

(1,291)

Effect of exchange rates on cash and cash equivalents

(3)

(1)

Net change in cash and cash equivalents

(4,138)

599

(1,482)

3,346

Cash and cash equivalents, beginning of period

8,161

8,823

5,505

^[1]

6,076

Cash and cash equivalents, end of period

$ 4,023

$ 9,422

$ 4,023

$ 9,422

[1]	Derived from audited financial statements.

STOCKHOLDERS' EQUITY STATEMENTS (USD $)
In Millions, unless otherwise specified

Total

Common stock and paid-in capital

Retained deficit, including accumulated other comprehensive income

Balance, beginning of period at Jun. 30, 2009

$ 62,382

$ (22,824)

10,236

1,027

(361)

653

10,589

(2,297)

(5,028)

(1,656)

(3,751)

928

Balance, end of period at Dec. 31, 2009

(115)

44,283

62,566

(18,283)

Balance, beginning of period at Sep. 30, 2009

62,293

(21,081)

6,662

779

(42)

(35)

6,650

(1,140)

(3,583)

(923)

(2,712)

485

Balance, end of period at Dec. 31, 2009

(68)

44,283

62,566

(18,283)

Balance, beginning of period at Jun. 30, 2010

46,175

^[1]

62,856

(16,681)

12,044

837

(586)

1,016

212

12,686

(2,699)

(9,000)

(2,980)

(6,471)

1,081

Balance, end of period at Dec. 31, 2010

(148)

48,481

61,646

(13,165)

Balance, beginning of period at Sep. 30, 2010

61,935

(14,993)

6,634

660

(80)

284

(26)

6,812

(1,337)

(5,000)

(1,405)

(3,647)

553

Balance, end of period at Dec. 31, 2010

(97)

$ 48,481

$ 61,646

$ (13,165)

[1]	Derived from audited financial statements.

ACCOUNTING POLICIES

6 Months Ended

Dec. 31, 2010

ACCOUNTING POLICIES

NOTE 1 ACCOUNTING POLICIES

Basis of Presentation and Use of Estimates

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 2010 Form 10-K filed on July 30, 2010 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 over but do not control the investee and are not the primary beneficiary of the investee’s activities 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.

Recently Adopted Accounting Guidance

On July 1, 2010, we adopted guidance issued by the Financial Accounting Standards Board (“FASB”) on revenue recognition. 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 are no longer within the scope of the software revenue recognition guidance, and software-enabled products are now subject to other relevant revenue recognition guidance. Additionally, the FASB issued 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. Adoption of the new guidance did not have a material impact on our financial statements.

On July 1, 2010, we also adopted guidance issued by the FASB on the consolidation of variable interest entities. 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. Adoption of the new guidance did not have a material impact on our financial statements.

Recent Accounting Guidance Not Yet Adopted

In January 2010, the FASB issued guidance to amend the disclosure requirements related to fair value measurements. The guidance requires the disclosure of roll forward activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for us with the reporting period beginning July 1, 2011. Other than requiring additional disclosures, the adoption of this new guidance will not have a material impact on our financial statements.

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

EARNINGS PER SHARE

6 Months Ended

Dec. 31, 2010

EARNINGS PER SHARE

NOTE 2 EARNINGS PER SHARE

Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options, stock awards, and shared performance stock awards. The components of basic and diluted earnings per share are as follows:


(In millions, except earnings per share)	Three Months Ended December 31,				Six Months Ended December 31,


	2010		2009		2010		2009

Net income available for common shareholders (A)	$	6,634	$	6,662	$	12,044	$	10,236

Weighted average shares of common stock (B)		8,497		8,856		8,555		8,885
Dilutive effect of stock-based awards		73		95		91		90

Common stock and common stock equivalents (C)		8,570		8,951		8,646		8,975

Earnings Per Share:
Basic (A/B)	$	0.78	$	0.75	$	1.41	$	1.15
Diluted (A/C)	$	0.77	$	0.74	$	1.39	$	1.14

We excluded the following shares underlying stock-based awards from the calculations of diluted earnings per share because their inclusion would have been anti-dilutive:

(In millions)

Three Months Ended

December 31,

Six Months Ended

December 31,

2010

2009

2010

2009

Shares excluded from calculations of diluted EPS

101

155

The decrease in anti-dilutive shares is due mainly to the decrease in employee stock options outstanding.

In June 2010, we issued $1.25 billion of zero-coupon debt securities that are convertible into shares of our common stock if certain conditions are met. Shares of common stock into which the debt could convert were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. See also Note 10 – Debt.

OTHER INCOME

6 Months Ended

Dec. 31, 2010

OTHER INCOME

NOTE 3 OTHER INCOME

The components of other income were as follows:


(In millions)	Three Months Ended December 31,						Six Months Ended December 31,


	2010			2009			2010			2009

Dividends and interest income	$	205		$	197		$	415		$	400
Interest expense		(72	)		(38	)		(117	)		(76	)
Net recognized gains on investments		118			92			152			162
Net gains on derivatives		108			96			103			92
Net gains (losses) on foreign currency remeasurements		(27	)		(23	)		(69	)		32
Other		0			46			(38	)		43

Total	$	332		$	370		$	446		$	653

INVESTMENTS

6 Months Ended

Dec. 31, 2010

INVESTMENTS

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


December 31, 2010
Cash	$	1,811	$	0	$	0		$	1,811	$	1,811	$	0	$	0
Mutual funds		367		0		0			367		367		0		0
Certificates of deposit		1,100		0		0			1,100		742		358		0
U.S. Government and Agency securities		26,535		137		(7	)		26,665		1,103		25,562		0
Foreign government bonds		553		13		0			566		0		566		0
Mortgage-backed securities		2,629		112		(6	)		2,735		0		2,735		0
Corporate notes and bonds		7,118		311		(14	)		7,415		0		7,415		0
Municipal securities		527		4		(5	)		526		0		526		0
Common and preferred stock		7,197		2,337		(107	)		9,427		0		0		9,427
Other investments		662		0		0			662		0		67		595

Total	$	48,499	$	2,914	$	(139	)	$	51,274	$	4,023	$	37,229	$	10,022


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


June 30, 2010
Cash	$	1,661	$	0	$	0		$	1,661	$	1,661	$	0	$	0
Mutual funds		1,120		0		0			1,120		1,120		0		0
Commercial paper		188		0		0			188		13		175		0
Certificates of deposit		348		0		0			348		68		280		0
U.S. Government and Agency securities		21,036		167		(1	)		21,202		1,822		19,380		0
Foreign government bonds		518		13		0			531		0		531		0
Mortgage-backed securities		3,137		135		(7	)		3,265		0		3,265		0
Corporate notes and bonds		7,450		289		(18	)		7,721		701		7,020		0
Municipal securities		726		22		(1	)		747		120		627		0
Common and preferred stock		6,640		1,030		(418	)		7,252		0		0		7,252
Other investments		507		0		0			507		0		5		502

Total	$	43,331	$	1,656	$	(445	)	$	44,542	$	5,505	$	31,283	$	7,754

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


December 31, 2010

U.S. Government and Agency securities	$	2,013	$	(7	)	$	0	$	0		$	2,013	$	(7	)
Mortgage-backed securities		79		(5	)		16		(1	)		95		(6	)
Corporate notes and bonds		635		(13	)		70		(1	)		705		(14	)
Municipal securities		255		(5	)		0		0			255		(5	)
Common and preferred stock		951		(80	)		193		(27	)		1,144		(107	)

Total	$	3,933	$	(110	)	$	279	$	(29	)	$	4,212	$	(139	)


	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, 2010

U.S. Government and Agency securities	$	216	$	(1	)	$	0	$	0		$	216	$	(1	)
Mortgage-backed securities		105		(6	)		18		(1	)		123		(7	)
Corporate notes and bonds		1,124		(13	)		89		(5	)		1,213		(18	)
Municipal securities		66		(1	)		0		0			66		(1	)
Common and preferred stock		2,102		(339	)		190		(79	)		2,292		(418	)

Total	$	3,613	$	(360	)	$	297	$	(85	)	$	3,910	$	(445	)

Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Unrealized losses from 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 December 31, 2010.

At December 31, 2010 and June 30, 2010, 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 $279 million and $216 million, respectively.

Debt Investment Maturities


(In millions)	Cost Basis		Estimated Fair Value


December 31, 2010

Due in one year or less	$	21,169	$	21,273
Due after one year through five years		11,677		11,887
Due after five years through 10 years		2,397		2,513
Due after 10 years		3,219		3,334

Total	$	38,462	$	39,007
					<

DERIVATIVES

6 Months Ended

Dec. 31, 2010

DERIVATIVES

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. Option 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 December 31, 2010 and June 30, 2010, the total notional amounts of these foreign exchange contracts sold were $11.6 billion and $9.3 billion, respectively.

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 December 31, 2010 and June 30, 2010, the total notional amounts of these foreign exchange contracts sold were $543 million and $523 million, respectively.

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 December 31, 2010, the total notional amounts of these foreign exchange contracts purchased and sold were $4.5 billion and $6.1 billion, respectively. As of June 30, 2010, the total notional amounts of these foreign exchange contracts purchased and sold were $7.8 billion and $5.3 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 December 31, 2010, the total notional amounts of designated and non-designated equity contracts purchased and sold were $1.5 billion and $1.1 billion, respectively. As of June 30, 2010, the total notional amounts of designated and non-designated equity contracts purchased and sold were $918 million and $472 million, respectively.

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 December 31, 2010, the total notional amounts of fixed-interest rate contracts purchased and sold were $1.0 billion and $433 million, respectively. As of June 30, 2010, the total notional amounts of fixed-interest rate contracts purchased and sold were $3.1 billion and $1.8 billion, 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 December 31, 2010 and June 30, 2010, the total notional derivative amount of mortgage contracts purchased were $645 million and $305 million, respectively.

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 December 31, 2010 and June 30, 2010, 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, futures and option contracts, not designated as hedging instruments, to generate and manage exposures to broad-based commodity indices. We use derivatives on commodities as they can be 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 December 31, 2010, the total notional amounts of commodity contracts purchased and sold were $1.4 billion and $456 million, respectively. As of June 30, 2010, the total notional amounts of commodity contracts purchased and sold were $1.1 billion and $376 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 December 31, 2010, our long-term unsecured debt rating was AAA, and cash investments were in excess of $1.0 billion. As a result, no collateral was required to be posted.

Fair Values of Derivative Instruments

Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.

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.

For derivative instruments designated as cash flow hedges, 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.

For derivative instruments that are not designated as hedges, gains (losses) from changes in fair values are primarily recognized in other income (expense). Other than those derivatives entered into for investment purposes, such as commodity contracts, the gains (losses) 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).

Following are the gross fair values of derivative instruments designated as hedging instruments (“designated hedge derivatives”) and not designated as hedging instruments (“non-designated hedge derivatives”) that were held at December 31, 2010 and June 30, 2010. The fair values exclude 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


December 31, 2010

Assets
Non-designated hedge derivatives:
Short-term investments	$	12		$	173		$	18		$	11		$	96		$	310
Other current assets		46			0			0			0			0			46

Total	$	58		$	173		$	18		$	11		$	96		$	356
Designated hedge derivatives:
Short-term investments	$	2		$	0		$	0		$	0		$	0		$	2
Other current assets		142			0			0			0			0			142

Total	$	144		$	0		$	0		$	0		$	0		$	144

Total assets	$	202		$	173		$	18		$	11		$	96		$	500

Liabilities
Non-designated hedge derivatives:
Other current liabilities	$	(48	)	$	(11	)	$	(6	)	$	(13	)	$	(34	)	$	(112	)
Designated hedge derivatives:
Other current liabilities	$	(358	)	$	0		$	0		$	0		$	0		$	(358	)

Total liabilities	$	(406	)	$	(11	)	$	(6	)	$	(13	)	$	(34	)	$	(470	)


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


June 30, 2010

Assets
Non-designated hedge derivatives:
Short-term investments	$	15		$	134		$	12		$	7		$	8		$	176
Other current assets		34			0			0			0			0			34

Total	$	49		$	134		$	12		$	7		$	8		$	210
Designated hedge derivatives:
Short-term investments	$	3		$	0		$	0		$	0		$	0		$	3
Other current assets		563			0			0			0			0			563

Total	$	566		$	0		$	0		$	0		$	0		$	566

Total assets	$	615		$	134		$	12		$	7		$	8		$	776

Liabilities
Non-designated hedge derivatives:
Other current liabilities	$	(60	)	$	(17	)	$	(33	)	$	(41	)	$	(5	)	$	(156	)
Designated hedge derivatives:
Other current liabilities	$	(9	)	$	0		$	0		$	0		$	0		$	(9	)

Total liabilities	$	(69	)	$	(17	)	$	(33	)	$	(41	)	$	(5	)	$	(165	)

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

Fair Value Hedges

We recognized in other income the following gains (losses) related to foreign exchange contracts designated as fair value hedges (our only fair value hedges during the periods presented) and their related hedged items:


(In millions)	Three Months Ended December 31,						Six Months Ended December 31,


	2010			2009			2010			2009

Derivatives	$	2		$	89		$	(50	)	$	(104	)
Hedged items		(2	)		(85	)		48			103

Total	$	0		$	4		$	(2	)	$	(1	)

Cash Flow Hedges

We recognized the following gains (losses) related to foreign exchange contracts designated as cash flow hedges (our only cash flow hedges during the periods presented):


(In millions)	Three Months Ended December 31,					Six Months Ended December 31,


	2010			2009		2010			2009

Effective Portion
Gain (loss) recognized in OCI, net of tax effect of $(24) for the three months ended and $(267) for the six months ended December 31, 2010, and $1 for the three months and $(111) for the six months ended December 31, 2009	$	(45	)	$	2	$	(497	)	$	(207	)
Gain reclassified from OCI into revenue		55			68		139			237

Amount Excluded from Effectiveness Assessment and Ineffective Portion
Gain (loss) recognized in other income		(16	)		26		(103	)		(14	)

We estimate that $104 million of net derivative losses 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 and six months ended December 31, 2010 and 2009.

Non-Designated Derivatives

Gains (losses) from changes in fair values of derivatives that are not designated as hedges are primarily recognized in other income (expense). These amounts are shown in the table below, with the exception of gains (losses) on derivatives presented in income statement line items other than other income (expense), which were immaterial for the three months and six months ended December 31, 2010 and 2009. 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.


(In millions)	Three Months Ended December 31,					Six Months Ended December 31,


	2010			2009		2010			2009

Foreign exchange contracts	$	(25	)	$	47	$	(85	)	$	90
Equity contracts		(2	)		7		31			16
Interest-rate contracts		24			9		12			12
Credit contracts		10			2		28			11
Commodity contracts		93			54		158			69

Total	$	100		$	119	$	144		$	198

FAIR VALUE MEASUREMENTS

6 Months Ended

Dec. 31, 2010

FAIR VALUE MEASUREMENTS

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 U.S. treasuries, domestic and international equities, and actively traded mutual funds. Our Level 1 derivative assets and liabilities include those actively 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, mortgage-backed securities, agency securities, certificates of deposit, and commercial paper. Our Level 2 derivative assets and liabilities primarily include certain over-the-counter option 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.

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 these 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair value 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	^(a)		Net Fair Value


December 31, 2010

Assets
Mutual funds	$	367	$	0	$	0	$	367	$	0		$	367
Certificates of deposit		0		1,100		0		1,100		0			1,100
U.S. Government and Agency securities		20,722		5,942		0		26,664		0			26,664
Foreign government bonds		257		316		0		573		0			573
Mortgage-backed securities		0		2,736		0		2,736		0			2,736
Corporate notes and bonds		0		7,067		171		7,238		0			7,238
Municipal securities		0		526		0		526		0			526
Common and preferred stock		9,085		58		5		9,148		0			9,148
Derivatives		17		468		15		500		(325	)		175

Total	$	30,448	$	18,213	$	191	$	48,852	$	(325	)	$	48,527

Liabilities
Derivatives and other	$	93	$	456	$	0	$	549	$	(325	)	$	224


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


June 30, 2010

Assets
Mutual funds	$	1,120	$	0	$	0	$	1,120	$	0		$	1,120
Commercial paper		0		172		0		172		0			172
Certificates of deposit		0		348		0		348		0			348
U.S. Government and Agency securities		16,473		4,756		0		21,229		0			21,229
Foreign government bonds		239		294		0		533		0			533
Mortgage-backed securities		0		3,264		0		3,264		0			3,264
Corporate notes and bonds		0		7,460		167		7,627		0			7,627
Municipal securities		0		747		0		747		0			747
Common and preferred stock		6,988		43		5		7,036		0			7,036
Derivatives		22		745		9		776		(207	)		569

Total	$	24,842	$	17,829	$	181	$	42,852	$	(207	)	$	42,645

Liabilities
Derivatives and other	$	85	$	137	$	0	$	222	$	(205	)	$	17

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

The table below reconciles the total Net Fair Value of assets above to the balance sheet presentation of these same assets in Note 4 – Investments for December 31, 2010 and June 30, 2010.


(In millions)


	December 31, 2010			June 30, 2010

Net fair value of assets measured at fair value on a recurring basis	$	48,527		$	42,645
Cash		1,811			1,661
Common and preferred stock measured at fair value on a nonrecurring basis		279			216
Other investments measured at fair value on a nonrecurring basis		596			502
Less derivative assets classified as other current assets		(16	)		(544	)
Other		77			62

Recorded basis of investment components	$	51,274		$	44,542

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

The following tables present the changes during the three months and six months ended December 31, 2010 and 2009 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 OCI.


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


Three Months and Six Months Ended December 31, 2010

Balance as of June 30, 2010	$	167		$	5	$	9		$	181
Total realized and unrealized gains (losses):
Included in other income (expense)		2			0		7			9
Included in other comprehensive income		(2	)		0		0			(2	)

Balance as of September 30, 2010	$	167		$	5	$	16		$	188
Total realized and unrealized gains:
Included in other income (expense)		2			0		(1	)		1
Included in other comprehensive income		2			0		0			2

Balance as of December 31, 2010	$	171		$	5	$	15		$	191

Change in unrealized gains (losses) included in other income (expense) for the three months ended December 31, 2010 related to assets held as of December 31, 2010	$	2		$	0	$	(1	)	$	1
Change in unrealized gains (losses) included in other income (expense) for the six months ended December 31, 2010 related to assets held as of December 31, 2010	$	4		$	0	$	6		$	10


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


Three Months and Six Months Ended December 31, 2009

Balance as of June 30, 2009	$	253		$	5	$	5		$	263
Total realized and unrealized gains (losses):
Included in other income (expense)		1			0		(2	)		(1	)
Included in other comprehensive income		(74	)		0		0			(74	)

Balance as of September 30, 2009	$	180		$	5	$	3		$	188
Total realized and unrealized gains:
Included in other income (expense)		1			0		1			2
Included in other comprehensive income		11			0		0			11

Balance as of December 31, 2009	$	192		$	5	$	4		$	201

Change in unrealized gains (losses) included in other income (expense) for the three months ended December 31, 2009 related to assets held as of December 31,2009	$	1		$	0	$	1		$	2
Change in unrealized gains (losses) included in other income (expense) for the six months ended December 31, 2009 related to assets held as of December 31, 2009	$	2		$	0	$	(1	)	$	1

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the three months and six months ended December 31, 2010 and 2009, we did not record any other-than-temporary impairments on those assets required to be measured at fair value on a non-recurring basis.

COMMITMENTS AND GUARANTEES

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

INVENTORIES

6 Months Ended

Dec. 31, 2010

INVENTORIES

NOTE 7 INVENTORIES

The components of inventories were as follows:


(In millions)


December 31, 2010			June 30, 2010

Raw materials	$	151	$	172
Work in process		54		16
Finished goods		656		552

Total	$	861	$	740

GOODWILL

6 Months Ended

Dec. 31, 2010

GOODWILL

NOTE 8 GOODWILL

Changes in our goodwill balances during the three months and six months ended December 31, 2010 were as follows:


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


September 30, 2010			December 31, 2010

Windows & Windows Live Division	$	89	$	0	$	0		$	89
Server and Tools		1,125		13		0			1,138
Online Services Division		6,373		0		0			6,373
Microsoft Business Division		4,102		0		(11	)		4,091
Entertainment and Devices Division		782		30		(1	)		811

Total	$	12,471	$	43	$	(12	)	$	12,502


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


June 30, 2010			December 31, 2010

Windows & Windows Live Division	$	77	$	0	$	12		$	89
Server and Tools		1,118		13		7			1,138
Online Services Division		6,373		0		0			6,373
Microsoft Business Division		4,024		0		67			4,091
Entertainment and Devices Division		802		30		(21	)		811

Total	$	12,394	$	43	$	65		$	12,502

We do not expect any of the amounts recorded as goodwill 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 will not exceed 12 months. 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 above table. Also included within “other” are transfers between business segments due to reorganizations.

INTANGIBLE ASSETS

6 Months Ended

Dec. 31, 2010

INTANGIBLE ASSETS

NOTE 9 INTANGIBLE ASSETS

The components of intangible assets were as follows:


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


	December 31, 2010							June 30, 2010

Contract-based	$	1,067	$	(935	)	$	132	$	1,075	$	(914	)	$	161
Technology-based		2,321		(1,639	)		682		2,308		(1,521	)		787
Marketing-related		113		(91	)		22		114		(86	)		28
Customer-related		392		(236	)		156		390		(208	)		182

Total	$	3,893	$	(2,901	)	$	992	$	3,887	$	(2,729	)	$	1,158

Intangible assets amortization expense was $126 million for the three months and $250 million for the six months ended December 31, 2010 as compared with $169 million for the three months and $318 million for the six months ended December 31, 2009. The following table outlines the estimated future amortization expense related to intangible assets held at December 31, 2010:


(In millions)


Year Ending June 30,

2011 (excluding the six months ended December 31, 2010)	$	252
2012		392
2013		251
2014		57
2015		16
2016 and thereafter		24

Total	$	992

DEBT

6 Months Ended

Dec. 31, 2010

DEBT

NOTE 10 DEBT

Short-term Debt

During the three months ended December 31, 2010, we repaid $1.0 billion of commercial paper, leaving zero outstanding.

On November 5, 2010, our $1.0 billion 364-day credit facility expired. This facility served as a back-up for our commercial paper program. No amounts were drawn against the credit facility during any of the periods presented.

Long-term Debt

As of December 31, 2010, the total carrying value and estimated fair value of our long-term debt, including convertible debt, were $9.7 billion and $9.8 billion, respectively. The estimated fair value is based on quoted prices for our publicly-traded debt as of December 31, 2010, as applicable.

The components of long-term debt and the associated interest rates and semi-annual interest record and payment dates were as follows as of December 31, 2010:

Due Date

Face Value

Interest Rate

Record Date

Pay Date

Record Date

Pay Date

Notes

(In millions)

September 27, 2013

1,000

0.875

March 15

March 27

September 15

September 27

June 1, 2014

2,000

2.950

May 15

June 1

November 15

December 1

September 25, 2015

1,750

1.625

March 15

March 25

September 15

September 25

June 1, 2019

1,000

4.200

May 15

June 1

November 15

December 1

October 1, 2020

1,000

3.000

March 15

April 1

September 15

October 1

June 1, 2039

750

5.200

May 15

June 1

November 15

December 1

October 1, 2040

1,000

4.500

March 15

April 1

September 15

October 1

Convertible Debt

June 15, 2013

1,250

0.000

Total unamortized discount

(79

)

Total

9,671

Notes

As of December 31, 2010, we had issued and outstanding $8.5 billion of debt securities as illustrated in the table above (collectively “the Notes”), including $4.75 billion of debt securities issued in September 2010. The Notes are senior unsecured obligations and rank equally with our other unsecured and unsubordinated debt outstanding.

Convertible Debt

In June 2010, we issued $1.25 billion of zero coupon convertible unsecured debt due on June 15, 2013 in a private placement offering. Proceeds from the offering were $1.24 billion, net of fees and expenses, which were capitalized. Each $1,000 principal amount of notes is convertible into 29.94 shares of Microsoft common stock at a conversion price of $33.40 per share.

Prior to March 15, 2013, the notes will be convertible, only in certain circumstances, into cash and, if applicable, cash, shares of Microsoft’s common stock or a combination thereof, at our election. On or after March 15, 2013, the notes will be convertible at any time. Upon conversion, we will pay cash up to the aggregate principal amount of the notes and pay or deliver cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

Because the convertible debt may be wholly or partially settled in cash, we are required to separately account for the liability and equity components of the notes in a manner that reflects our nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods. The net proceeds of $1.24 billion were allocated between debt for $1.18 billion and stockholders’ equity for $58 million with the portion in stockholders’ equity representing the fair value of the option to convert the debt.

In connection with the issuance of the notes, we entered into capped call transactions with certain option counterparties who are initial purchasers of the notes or their affiliates. The capped call transactions are expected to reduce potential dilution of earnings per share upon conversion of the notes. Under the capped call transactions, we purchased from the option counterparties capped call options that in the aggregate relate to the total number of shares of our common stock underlying the notes, with a strike price equal to the conversion price of the notes and with a cap price equal to $37.16. The purchased capped calls were valued at $40 million and recorded to stockholders’ equity.

INCOME TAXES

6 Months Ended

Dec. 31, 2010

INCOME TAXES

NOTE 11 INCOME TAXES

Our effective tax rates were approximately 22% and 25% for the three months ended December 31, 2010 and 2009, respectively, and 23% and 25% for the six months ended December 31, 2010 and 2009, respectively. The reduction in the rate was due to a higher mix of earnings taxed at lower rates in foreign jurisdictions, and the retroactive extension of the research and development tax credit in the United States. Tax contingencies and other tax liabilities were $6.9 billion as of December 31, 2010 and June 30, 2010, and were included in other long-term liabilities.

UNEARNED REVENUE

6 Months Ended

Dec. 31, 2010

UNEARNED REVENUE

NOTE 12 UNEARNED REVENUE

The components of unearned revenue were as follows:


(In millions)


December 31, 2010			June 30, 2010

Volume licensing programs	$	11,119	$	12,180
Undelivered elements		221		624
Other		2,077		2,026

Total	$	13,417	$	14,830

Unearned revenue by segment was as follows:


(In millions)


December 31, 2010			June 30, 2010

Windows & Windows Live Division	$	1,467	$	1,701
Server and Tools		4,938		5,282
Microsoft Business Division		6,171		7,004
Other segments		841		843

Total	$	13,417	$	14,830

COMMITMENTS AND GUARANTEES

6 Months Ended

Dec. 31, 2010

NOTE 13 COMMITMENTS AND GUARANTEES

Yahoo! Commercial Agreement

On December 4, 2009, we entered into a definitive agreement with Yahoo! whereby Microsoft will provide the exclusive algorithmic and paid search platform for Yahoo! Web sites. The term of the agreement is 10 years subject to termination provisions after five years based on performance.

Microsoft provided Yahoo! with revenue per search guarantees for a period of 18 months after implementation of the Microsoft search ads platform in each country. These guarantees are calculated, paid and trued-up periodically based on the cumulative reduction in revenue per search, if any, during the 18 month period from pre-implementation levels, except in the case of the U.S. and Canada where performance during each of the first two calendar quarters after implementation is independent and not cumulative. This is a rate guarantee and not a guarantee of search volume. We estimate the total cost of the revenue per search guarantees during the guarantee period could range up to $150 million.

Microsoft also agreed to reimburse Yahoo! for certain transition expenses incurred both before and after the effective date of the agreement.

Finally, Microsoft also agreed to reimburse Yahoo! for certain costs of running algorithmic and paid search services prior to migration to Microsoft’s platform.

Product Warranty

Our aggregate product warranty liabilities, which are included in other current liabilities and other long-term liabilities, changed during the three months and six months ended December 31, 2010 as follows:


(In millions)	Three Months Ended December 31,						Six Months Ended December 31,


	2010			2009			2010			2009

Balance, beginning of period	$	214		$	289		$	240		$	342
Accrual for warranties issued		19			61			32			94
Adjustments to pre-existing warranties		0			(2	)		0			(2	)
Settlements of warranty claims		(31	)		(40	)		(70	)		(126	)

Balance, end of period	$	202		$	308		$	202		$	308

CONTINGENCIES

6 Months Ended

Dec. 31, 2010

CONTINGENCIES

NOTE 14 CONTINGENCIES

Government Competition Law Matters

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. The Final Judgments are scheduled to expire in May 2011.

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.

The settlements in all states have received final court approval. 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. We estimate the total cost to resolve all of the state overcharge class action cases will range between $1.9 billion and $2.0 billion. At December 31, 2010, we have recorded a liability related to these claims of approximately $593 million, which reflects our estimated exposure of $1.9 billion less payments made to date of approximately $1.3 billion mostly for vouchers, legal fees, and administrative expenses.

The three cases pending in British Columbia, Ontario, and Quebec, Canada have not been settled. In March 2010, the court in the British Columbia case certified it as a class action. We have appealed this ruling. The other two actions have been stayed.

Other Antitrust Litigation and Claims

In November 2004, Novell, Inc. filed a complaint in U.S. District Court for the District of Utah (later transferred to federal court in Maryland), 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. In June 2005, the trial court granted our motion to dismiss four of six claims of the complaint. In March 2010 the trial court granted summary judgment in favor of Microsoft as to all remaining claims. Novell has appealed that ruling.

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 September 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. Trial on the remanded damages claim is set to begin in July 2011.

In October 2003, Uniloc USA Inc., a subsidiary of a Singapore-based company, filed a patent infringement suit in U.S. District Court in Rhode Island, claiming that product activation technology supporting 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. In September 2009, the district court judge overturned the jury verdict, ruling that the evidence did not support the jury’s findings either that Microsoft infringed the patent or was willful. Uniloc appealed, and in January 2011, the court of appeals reversed the district court’s finding of non-infringement (thus reinstating the jury verdict of infringement) but affirmed the district court’s ruling that Microsoft was not willful and affirmed the district court’s grant of a new trial on damages. We are exploring our options for further appellate review.

In March 2007, i4i Limited Partnership 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 awarded enhanced damages of $40 million and prejudgment interest of $37 million. The court also issued a permanent injunction prohibiting additional distribution of the allegedly infringing technology. We appealed and the appellate court stayed the injunction pending our appeal. In December 2009, the court of appeals rejected our appeal and affirmed the trial court’s judgment and injunction, except that the court of appeals modified the effective date of the injunction to January 11, 2010. In November 2010, the U.S. Supreme Court granted our petition seeking review of the case; we expect oral argument in April 2011 and a decision in June 2011.

In October 2010, we filed suit against Motorola with the International Trade Commission and in U.S. District Court in Washington for infringement of nine Microsoft patents by Motorola’s Android-based smartphones. In addition, in November 2010, we filed suit against Motorola in U.S. District Court in Washington for breach of Motorola’s contractual commitments to the Institute of Electrical and Electronics Engineers (IEEE) and International Telecommunications Union (ITU) to license identified patents related to wireless and video coding technologies under reasonable and non-discriminatory terms and conditions. In November 2010, Motorola filed two patent infringement actions against us in U.S. District Court in Wisconsin and one in U.S. District Court in Florida on a total of sixteen patents asserted variously against Windows, Windows Phone 7, Windows Mobile 6.5, Xbox, Bing Maps, Hotmail, Messenger and Exchange Server.

In addition to these cases, there are approximately 45 other patent infringement cases pending against Microsoft.

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 statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

As of December 31, 2010, we had accrued aggregate liabilities of $877 million in other current liabilities and $336 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 reach approximately $950 million in aggregate beyond recorded amounts. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on our financial statements for the period in which the effects become reasonably estimable.

STOCKHOLDERS' EQUITY

6 Months Ended

Dec. 31, 2010

STOCKHOLDERS' EQUITY

NOTE 15 STOCKHOLDERS’ EQUITY

Share Repurchases

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

(In millions)

Three Months Ended
December 31,

Six Months Ended
December 31,

2010

2009

2010

2009

Shares of common stock repurchased

188

125

351

183

Value of common stock repurchased

5,000

3,583

9,000

5,028

We repurchased all shares with cash resources. As of December 31, 2010, approximately $14.7 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)

Fiscal year 2011

September 21, 2010

0.16

November 18, 2010

1,363

December 9, 2010

December 15, 2010

0.16

February 17, 2011

1,344

March 10, 2011

Fiscal year 2010

September 18, 2009

0.13

November 19, 2009

1,152

December 10, 2009

December 9, 2009

0.13

February 18, 2010

1,139

March 11, 2010

The estimate of the amount to be paid as a result of the December 15, 2010 declaration was included in other current liabilities as of December 31, 2010.

Basis of Presentation and Use of Estimates

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

SEGMENT INFORMATION

6 Months Ended

Dec. 31, 2010

SEGMENT INFORMATION

NOTE 16 SEGMENT INFORMATION

In its operation of the business, management, including our chief operating decision maker, the Company’s Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with U.S. GAAP. The segment information within this note is reported on that basis. Our five segments are Windows & Windows Live Division; Server and Tools; Online Services Division; Microsoft Business Division; and Entertainment and Devices Division.

Due to the integrated structure of our business, certain revenue earned and costs incurred by one segment may benefit other segments. Revenue on certain contracts may be allocated among the segments based on the relative value of the underlying products and services. Costs that are identifiable are allocated to the segments that benefit to incent cross-collaboration among our segments so that one segment is not solely burdened by the cost of a mutually beneficial activity. Allocated costs may include those relating to development and marketing of products and services from which multiple segments benefit, or those costs relating to services performed by one segment on behalf of other segments. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated.

In addition, certain costs incurred at a corporate level that are identifiable and that benefit our segments are allocated to them. These allocated costs include costs of: field selling; employee benefits; shared facilities services; and customer service and support. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Certain other 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; legal settlements and contingencies; and employee severance.

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 fiscal year.

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


(In millions)	Three Months Ended December 31,						Six Months Ended December 31,


	2010			2009			2010			2009

Revenue
Windows & Windows Live Division	$	4,985		$	5,361		$	9,690		$	9,590
Server and Tools		4,392			3,980			8,354			7,528
Online Services Division		691			578			1,218			1,065
Microsoft Business Division		5,811			4,868			10,908			9,367
Entertainment and Devices Division		3,653			2,417			5,422			3,850
Unallocated and other		421			1,818			556			542

Consolidated	$	19,953		$	19,022		$	36,148		$	31,942

Operating income (loss)
Windows & Windows Live Division	$	3,189		$	3,575		$	6,393		$	6,392
Server and Tools		1,758			1,421			3,352			2,610
Online Services Division		(562	)		(477	)		(1,140	)		(973	)
Microsoft Business Division		3,731			2,924			7,038			5,687
Entertainment and Devices Division		636			363			1,002			623
Reconciling amounts		(587	)		707			(1,364	)		(1,344	)

Consolidated	$	8,165		$	8,513		$	15,281		$	12,995

Reconciling amounts in the tables above and below include adjustments to conform our internal accounting policies to 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, depreciation, and amortization of stock-based awards.

Significant reconciling items were as follows:


(In millions)	Three Months Ended December 31,						Six Months Ended December 31,


	2010			2009			2010			2009

Corporate-level activity ^(a)	$	(963	)	$	(1,217	)	$	(2,011	)	$	(2,052	)
Stock-based compensation		65			108			244			268
Revenue reconciling amounts ^(b)		333			1,791			464			428
Other		(22	)		25			(61	)		12

Total	$	(587	)	$	707		$	(1,364	)	$	(1,344	)

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

(b)

For the three months ended December 31, 2009, revenue reconciling amounts include the recognition of previously deferred revenue related to sales of Windows Vista with a guarantee to be upgraded to Windows 7 at minimal or no cost and sales of Windows 7 to original equipment manufacturers and retailers before general availability.

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.

ACCOUNTING POLICIES (Policies)

6 Months Ended

Dec. 31, 2010

Basis of Presentation and Use of Estimates

Principles of Consolidation

Principles of Consolidation

Recently Adopted Accounting Guidance

Recently Adopted Accounting Guidance

Recent Accounting Guidance Not Yet Adopted

Recent Accounting Guidance Not Yet Adopted

Derivatives

Fair Values of Derivative Instruments

Fair Value Measurements

•

Describes an entity's accounting policy regarding (1) the principles it follows in consolidating or combining the separate financial statements, including the principles followed in determining the inclusion or exclusion of subsidiaries or other entities in the consolidated or combined financial statements and (2) its treatment of interests (for example common stock, a partnership interest or other means of exerting influence) in other entities, for example consolidation or use of the equity or cost methods of accounting. An entity also may describe its accounting treatment for intercompany accounts and transactions, noncontrolling interest, and the income statement treatment in consolidation for issuances of stock by a subsidiary.

+ References+ Details

Basic and Diluted Earnings Per Share

Describes an entity's accounting policies for its derivative instruments and hedging activities. Disclosure may include: (1) Each method used to account for derivative financial instruments and derivative commodity instruments ("derivatives"); (2) the types of derivatives accounted for under each method; (3) the criteria required to be met for each accounting method used, including a discussion of the criteria required to be met for hedge or deferral accounting and accrual or settlement accounting (for example: whether and how risk reduction, correlation, designation, and effectiveness tests are applied); (4) the accounting method used if the criteria specified for hedge accounting are not met; (5) the method used to account for termination of derivatives designated as hedges or derivatives used to affect directly or indirectly the terms, fair values, or cash flows of a designated item; (6) the method used to account for derivatives when the designated item matures, is sold, is extinguished, or is terminated. In addition, the method used to account for derivatives designated to an anticipated transaction, when the anticipated transaction is no longer likely to occur; and (7) where and when derivatives, and their related gains (losses) are reported in the statement of financial position, cash flows, and results of operations and (8) an accounting policy decision to offset fair value amounts with counterparties. An entity should also consider describing its embedded derivatives, and the method(s) used to determine the fair values of derivatives and any significant assumptions used in such valuations.

+ References+ Details

EARNINGS PER SHARE (Tables)

6 Months Ended

Dec. 31, 2010

The components of basic and diluted earnings per share are as follows:


(In millions, except earnings per share)	Three Months Ended December 31,				Six Months Ended December 31,


	2010		2009		2010		2009

Net income available for common shareholders (A)	$	6,634	$	6,662	$	12,044	$	10,236

Weighted average shares of common stock (B)		8,497		8,856		8,555		8,885
Dilutive effect of stock-based awards		73		95		91		90

Common stock and common stock equivalents (C)		8,570		8,951		8,646		8,975

Earnings Per Share:
Basic (A/B)	$	0.78	$	0.75	$	1.41	$	1.15
Diluted (A/C)	$	0.77	$	0.74	$	1.39	$	1.14

Shares Excluded from Computation of Diluted Earnings Per Share

We excluded the following shares underlying stock-based awards from the calculations of diluted earnings per share because their inclusion would have been anti-dilutive:

(In millions)

Three Months Ended

December 31,

Six Months Ended

December 31,

2010

2009

2010

2009

Shares excluded from calculations of diluted EPS

101

155

OTHER INCOME (Tables)

6 Months Ended

Dec. 31, 2010

Components of Other Income

The components of other income were as follows:


(In millions)	Three Months Ended December 31,						Six Months Ended December 31,


	2010			2009			2010			2009

Dividends and interest income	$	205		$	197		$	415		$	400
Interest expense		(72	)		(38	)		(117	)		(76	)
Net recognized gains on investments		118			92			152			162
Net gains on derivatives		108			96			103			92
Net gains (losses) on foreign currency remeasurements		(27	)		(23	)		(69	)		32
Other		0			46			(38	)		43

Total	$	332		$	370		$	446		$	653

INVESTMENTS (Tables)

6 Months Ended

Dec. 31, 2010

Investment Components, Including Associated Derivatives

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


December 31, 2010
Cash	$	1,811	$	0	$	0		$	1,811	$	1,811	$	0	$	0
Mutual funds		367		0		0			367		367		0		0
Certificates of deposit		1,100		0		0			1,100		742		358		0
U.S. Government and Agency securities		26,535		137		(7	)		26,665		1,103		25,562		0
Foreign government bonds		553		13		0			566		0		566		0
Mortgage-backed securities		2,629		112		(6	)		2,735		0		2,735		0
Corporate notes and bonds		7,118		311		(14	)		7,415		0		7,415		0
Municipal securities		527		4		(5	)		526		0		526		0
Common and preferred stock		7,197		2,337		(107	)		9,427		0		0		9,427
Other investments		662		0		0			662		0		67		595

Total	$	48,499	$	2,914	$	(139	)	$	51,274	$	4,023	$	37,229	$	10,022


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


June 30, 2010
Cash	$	1,661	$	0	$	0		$	1,661	$	1,661	$	0	$	0
Mutual funds		1,120		0		0			1,120		1,120		0		0
Commercial paper		188		0		0			188		13		175		0
Certificates of deposit		348		0		0			348		68		280		0
U.S. Government and Agency securities		21,036		167		(1	)		21,202		1,822		19,380		0
Foreign government bonds		518		13		0			531		0		531		0
Mortgage-backed securities		3,137		135		(7	)		3,265		0		3,265		0
Corporate notes and bonds		7,450		289		(18	)		7,721		701		7,020		0
Municipal securities		726		22		(1	)		747		120		627		0
Common and preferred stock		6,640		1,030		(418	)		7,252		0		0		7,252
Other investments		507		0		0			507		0		5		502

Total	$	43,331	$	1,656	$	(445	)	$	44,542	$	5,505	$	31,283	$	7,754

Unrealized Loss Position 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


December 31, 2010

U.S. Government and Agency securities	$	2,013	$	(7	)	$	0	$	0		$	2,013	$	(7	)
Mortgage-backed securities		79		(5	)		16		(1	)		95		(6	)
Corporate notes and bonds		635		(13	)		70		(1	)		705		(14	)
Municipal securities		255		(5	)		0		0			255		(5	)
Common and preferred stock		951		(80	)		193		(27	)		1,144		(107	)

Total	$	3,933	$	(110	)	$	279	$	(29	)	$	4,212	$	(139	)


	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, 2010

U.S. Government and Agency securities	$	216	$	(1	)	$	0	$	0		$	216	$	(1	)
Mortgage-backed securities		105		(6	)		18		(1	)		123		(7	)
Corporate notes and bonds		1,124		(13	)		89		(5	)		1,213		(18	)
Municipal securities		66		(1	)		0		0			66		(1	)
Common and preferred stock		2,102		(339	)		190		(79	)		2,292		(418	)

Total	$	3,613	$	(360	)	$	297	$	(85	)	$	3,910	$	(445	)

Debt Investment Maturities

Debt Investment Maturities


(In millions)	Cost Basis		Estimated Fair Value


December 31, 2010

Due in one year or less	$	21,169	$	21,273
Due after one year through five years		11,677		11,887
Due after five years through 10 years		2,397		2,513
Due after 10 years		3,219		3,334

Total	$	38,462	$	39,007

DERIVATIVES (Tables)

6 Months Ended

Dec. 31, 2010

Fair Values of Derivative Instruments


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


December 31, 2010

Assets
Non-designated hedge derivatives:
Short-term investments	$	12		$	173		$	18		$	11		$	96		$	310
Other current assets		46			0			0			0			0			46

Total	$	58		$	173		$	18		$	11		$	96		$	356
Designated hedge derivatives:
Short-term investments	$	2		$	0		$	0		$	0		$	0		$	2
Other current assets		142			0			0			0			0			142

Total	$	144		$	0		$	0		$	0		$	0		$	144

Total assets	$	202		$	173		$	18		$	11		$	96		$	500

Liabilities
Non-designated hedge derivatives:
Other current liabilities	$	(48	)	$	(11	)	$	(6	)	$	(13	)	$	(34	)	$	(112	)
Designated hedge derivatives:
Other current liabilities	$	(358	)	$	0		$	0		$	0		$	0		$	(358	)

Total liabilities	$	(406	)	$	(11	)	$	(6	)	$	(13	)	$	(34	)	$	(470	)


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


June 30, 2010

Assets
Non-designated hedge derivatives:
Short-term investments	$	15		$	134		$	12		$	7		$	8		$	176
Other current assets		34			0			0			0			0			34

Total	$	49		$	134		$	12		$	7		$	8		$	210
Designated hedge derivatives:
Short-term investments	$	3		$	0		$	0		$	0		$	0		$	3
Other current assets		563			0			0			0			0			563

Total	$	566		$	0		$	0		$	0		$	0		$	566

Total assets	$	615		$	134		$	12		$	7		$	8		$	776

Liabilities
Non-designated hedge derivatives:
Other current liabilities	$	(60	)	$	(17	)	$	(33	)	$	(41	)	$	(5	)	$	(156	)
Designated hedge derivatives:
Other current liabilities	$	(9	)	$	0		$	0		$	0		$	0		$	(9	)

Total liabilities	$	(69	)	$	(17	)	$	(33	)	$	(41	)	$	(5	)	$	(165	)

Gains (Losses) on Fair Value Hedges and Related Hedged Items


(In millions)	Three Months Ended December 31,						Six Months Ended December 31,


	2010			2009			2010			2009

Derivatives	$	2		$	89		$	(50	)	$	(104	)
Hedged items		(2	)		(85	)		48			103

Total	$	0		$	4		$	(2	)	$	(1	)

Gains (Losses) Related to Cash Flow Hedges

We recognized the following gains (losses) related to foreign exchange contracts designated as cash flow hedges (our only cash flow hedges during the periods presented):


(In millions)	Three Months Ended December 31,					Six Months Ended December 31,


	2010			2009		2010			2009

Effective Portion
Gain (loss) recognized in OCI, net of tax effect of $(24) for the three months ended and $(267) for the six months ended December 31, 2010, and $1 for the three months and $(111) for the six months ended December 31, 2009	$	(45	)	$	2	$	(497	)	$	(207	)
Gain reclassified from OCI into revenue		55			68		139			237

Amount Excluded from Effectiveness Assessment and Ineffective Portion
Gain (loss) recognized in other income		(16	)		26		(103	)		(14	)

Non-Designated Derivatives


(In millions)	Three Months Ended December 31,					Six Months Ended December 31,


	2010			2009		2010			2009

Foreign exchange contracts	$	(25	)	$	47	$	(85	)	$	90
Equity contracts		(2	)		7		31			16
Interest-rate contracts		24			9		12			12
Credit contracts		10			2		28			11
Commodity contracts		93			54		158			69

Total	$	100		$	119	$	144		$	198

FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Dec. 31, 2010

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair value 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	^(a)		Net Fair Value


December 31, 2010

Assets
Mutual funds	$	367	$	0	$	0	$	367	$	0		$	367
Certificates of deposit		0		1,100		0		1,100		0			1,100
U.S. Government and Agency securities		20,722		5,942		0		26,664		0			26,664
Foreign government bonds		257		316		0		573		0			573
Mortgage-backed securities		0		2,736		0		2,736		0			2,736
Corporate notes and bonds		0		7,067		171		7,238		0			7,238
Municipal securities		0		526		0		526		0			526
Common and preferred stock		9,085		58		5		9,148		0			9,148
Derivatives		17		468		15		500		(325	)		175

Total	$	30,448	$	18,213	$	191	$	48,852	$	(325	)	$	48,527

Liabilities
Derivatives and other	$	93	$	456	$	0	$	549	$	(325	)	$	224


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


June 30, 2010

Assets
Mutual funds	$	1,120	$	0	$	0	$	1,120	$	0		$	1,120
Commercial paper		0		172		0		172		0			172
Certificates of deposit		0		348		0		348		0			348
U.S. Government and Agency securities		16,473		4,756		0		21,229		0			21,229
Foreign government bonds		239		294		0		533		0			533
Mortgage-backed securities		0		3,264		0		3,264		0			3,264
Corporate notes and bonds		0		7,460		167		7,627		0			7,627
Municipal securities		0		747		0		747		0			747
Common and preferred stock		6,988		43		5		7,036		0			7,036
Derivatives		22		745		9		776		(207	)		569

Total	$	24,842	$	17,829	$	181	$	42,852	$	(207	)	$	42,645

Liabilities
Derivatives and other	$	85	$	137	$	0	$	222	$	(205	)	$	17

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

Reconciliation of total Assets Measured at Fair Value on a Recurring Basis to the Balance Sheet Presentation

The table below reconciles the total Net Fair Value of assets above to the balance sheet presentation of these same assets in Note 4 – Investments for December 31, 2010 and June 30, 2010.


(In millions)


	December 31, 2010			June 30, 2010

Net fair value of assets measured at fair value on a recurring basis	$	48,527		$	42,645
Cash		1,811			1,661
Common and preferred stock measured at fair value on a nonrecurring basis		279			216
Other investments measured at fair value on a nonrecurring basis		596			502
Less derivative assets classified as other current assets		(16	)		(544	)
Other		77			62

Recorded basis of investment components	$	51,274		$	44,542

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


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


Three Months and Six Months Ended December 31, 2010

Balance as of June 30, 2010	$	167		$	5	$	9		$	181
Total realized and unrealized gains (losses):
Included in other income (expense)		2			0		7			9
Included in other comprehensive income		(2	)		0		0			(2	)

Balance as of September 30, 2010	$	167		$	5	$	16		$	188
Total realized and unrealized gains:
Included in other income (expense)		2			0		(1	)		1
Included in other comprehensive income		2			0		0			2

Balance as of December 31, 2010	$	171		$	5	$	15		$	191

Change in unrealized gains (losses) included in other income (expense) for the three months ended December 31, 2010 related to assets held as of December 31, 2010	$	2		$	0	$	(1	)	$	1
Change in unrealized gains (losses) included in other income (expense) for the six months ended December 31, 2010 related to assets held as of December 31, 2010	$	4		$	0	$	6		$	10


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


Three Months and Six Months Ended December 31, 2009

Balance as of June 30, 2009	$	253		$	5	$	5		$	263
Total realized and unrealized gains (losses):
Included in other income (expense)		1			0		(2	)		(1	)
Included in other comprehensive income		(74	)		0		0			(74	)

Balance as of September 30, 2009	$	180		$	5	$	3		$	188
Total realized and unrealized gains:
Included in other income (expense)		1			0		1			2
Included in other comprehensive income		11			0		0			11

Balance as of December 31, 2009	$	192		$	5	$	4		$	201

Change in unrealized gains (losses) included in other income (expense) for the three months ended December 31, 2009 related to assets held as of December 31,2009	$	1		$	0	$	1		$	2
Change in unrealized gains (losses) included in other income (expense) for the six months ended December 31, 2009 related to assets held as of December 31, 2009	$	2		$	0	$	(1	)	$	1

GOODWILL (Tables)

6 Months Ended

Dec. 31, 2010

Carrying Amount of Goodwill

Changes in our goodwill balances during the three months and six months ended December 31, 2010 were as follows:


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


September 30, 2010			December 31, 2010

Windows & Windows Live Division	$	89	$	0	$	0		$	89
Server and Tools		1,125		13		0			1,138
Online Services Division		6,373		0		0			6,373
Microsoft Business Division		4,102		0		(11	)		4,091
Entertainment and Devices Division		782		30		(1	)		811

Total	$	12,471	$	43	$	(12	)	$	12,502


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


June 30, 2010			December 31, 2010

Windows & Windows Live Division	$	77	$	0	$	12		$	89
Server and Tools		1,118		13		7			1,138
Online Services Division		6,373		0		0			6,373
Microsoft Business Division		4,024		0		67			4,091
Entertainment and Devices Division		802		30		(21	)		811

Total	$	12,394	$	43	$	65		$	12,502

INTANGIBLE ASSETS (Tables)

6 Months Ended

Dec. 31, 2010

Finite-Lived Intangible Assets

The components of intangible assets were as follows:


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


	December 31, 2010							June 30, 2010

Contract-based	$	1,067	$	(935	)	$	132	$	1,075	$	(914	)	$	161
Technology-based		2,321		(1,639	)		682		2,308		(1,521	)		787
Marketing-related		113		(91	)		22		114		(86	)		28
Customer-related		392		(236	)		156		390		(208	)		182

Total	$	3,893	$	(2,901	)	$	992	$	3,887	$	(2,729	)	$	1,158

Estimated Future Amortization Expense Related to Intangible Assets

The following table outlines the estimated future amortization expense related to intangible assets held at December 31, 2010:


(In millions)


Year Ending June 30,

2011 (excluding the six months ended December 31, 2010)	$	252
2012		392
2013		251
2014		57
2015		16
2016 and thereafter		24

Total	$	992

DEBT (Tables)

6 Months Ended

Dec. 31, 2010

Long-term Debt

The components of long-term debt and the associated interest rates and semi-annual interest record and payment dates were as follows as of December 31, 2010:

Due Date

Face Value

Interest Rate

Record Date

Pay Date

Record Date

Pay Date

Notes

(In millions)

September 27, 2013

1,000

0.875

March 15

March 27

September 15

September 27

June 1, 2014

2,000

2.950

May 15

June 1

November 15

December 1

September 25, 2015

1,750

1.625

March 15

March 25

September 15

September 25

June 1, 2019

1,000

4.200

May 15

June 1

November 15

December 1

October 1, 2020

1,000

3.000

March 15

April 1

September 15

October 1

June 1, 2039

750

5.200

May 15

June 1

November 15

December 1

October 1, 2040

1,000

4.500

March 15

April 1

September 15

October 1

Convertible Debt

June 15, 2013

1,250

0.000

Total unamortized discount

(79

)

Total

9,671

UNEARNED REVENUE (Tables)

6 Months Ended

Dec. 31, 2010

Components of Unearned Revenue

The components of unearned revenue were as follows:


(In millions)


December 31, 2010			June 30, 2010

Volume licensing programs	$	11,119	$	12,180
Undelivered elements		221		624
Other		2,077		2,026

Total	$	13,417	$	14,830

Unearned Revenue by Segment

Unearned revenue by segment was as follows:


(In millions)


December 31, 2010			June 30, 2010

Windows & Windows Live Division	$	1,467	$	1,701
Server and Tools		4,938		5,282
Microsoft Business Division		6,171		7,004
Other segments		841		843

Total	$	13,417	$	14,830

COMMITMENTS AND GUARANTEES (Tables)

6 Months Ended

Dec. 31, 2010

Product Warranty Liabilities


(In millions)	Three Months Ended December 31,						Six Months Ended December 31,


	2010			2009			2010			2009

Balance, beginning of period	$	214		$	289		$	240		$	342
Accrual for warranties issued		19			61			32			94
Adjustments to pre-existing warranties		0			(2	)		0			(2	)
Settlements of warranty claims		(31	)		(40	)		(70	)		(126	)

Balance, end of period	$	202		$	308		$	202		$	308

STOCKHOLDERS' EQUITY (Tables)

6 Months Ended

Dec. 31, 2010

Share Repurchases

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

(In millions)

Three Months Ended
December 31,

Six Months Ended
December 31,

2010

2009

2010

2009

Shares of common stock repurchased

188

125

351

183

Value of common stock repurchased

5,000

3,583

9,000

5,028

Dividends Declared

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)

Fiscal year 2011

September 21, 2010

0.16

November 18, 2010

1,363

December 9, 2010

December 15, 2010

0.16

February 17, 2011

1,344

March 10, 2011

Fiscal year 2010

September 18, 2009

0.13

November 19, 2009

1,152

December 10, 2009

December 9, 2009

0.13

February 18, 2010

1,139

March 11, 2010

SEGMENT INFORMATION (Tables)

6 Months Ended

Dec. 31, 2010

Segment Revenue and Operating Income (Loss)

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


(In millions)	Three Months Ended December 31,						Six Months Ended December 31,


	2010			2009			2010			2009

Revenue
Windows & Windows Live Division	$	4,985		$	5,361		$	9,690		$	9,590
Server and Tools		4,392			3,980			8,354			7,528
Online Services Division		691			578			1,218			1,065
Microsoft Business Division		5,811			4,868			10,908			9,367
Entertainment and Devices Division		3,653			2,417			5,422			3,850
Unallocated and other		421			1,818			556			542

Consolidated	$	19,953		$	19,022		$	36,148		$	31,942

Operating income (loss)
Windows & Windows Live Division	$	3,189		$	3,575		$	6,393		$	6,392
Server and Tools		1,758			1,421			3,352			2,610
Online Services Division		(562	)		(477	)		(1,140	)		(973	)
Microsoft Business Division		3,731			2,924			7,038			5,687
Entertainment and Devices Division		636			363			1,002			623
Reconciling amounts		(587	)		707			(1,364	)		(1,344	)

Consolidated	$	8,165		$	8,513		$	15,281		$	12,995

Significant Reconciling Items

Significant reconciling items were as follows:


(In millions)	Three Months Ended December 31,						Six Months Ended December 31,


	2010			2009			2010			2009

Corporate-level activity ^(a)	$	(963	)	$	(1,217	)	$	(2,011	)	$	(2,052	)
Stock-based compensation		65			108			244			268
Revenue reconciling amounts ^(b)		333			1,791			464			428
Other		(22	)		25			(61	)		12

Total	$	(587	)	$	707		$	(1,364	)	$	(1,344	)

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

(b)

Basic and Diluted Earnings Per Share (Detail) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2010	Dec. 31, 2009
Net income available for common shareholders (A)	$ 6,634	$ 6,662	$ 12,044	$ 10,236
Weighted average shares of common stock (B)	8,497	8,856	8,555	8,885
Dilutive effect of stock-based awards	73	95	91	90
Common stock and common stock equivalents (C)	8,570	8,951	8,646	8,975
Earnings Per Share:
Basic (A/B)	$ 0.78	$ 0.75	$ 1.41	$ 1.15
Diluted (A/C)	$ 0.77	$ 0.74	$ 1.39	$ 1.14

Aggregate awards of share options and nonvested shares to be issued to an employee under a share-based compensation arrangement are considered options for purposes of computing diluted earnings per share. Such share-based awards shall be considered to be outstanding as of the grant date for purposes of computing diluted earnings per share even though their exercise may be contingent upon vesting. Those share-based awards are included in the diluted Earnings Per Share (EPS) computation even if the employee may not receive (or be able to sell) the stock until some future date. Accordingly, all shares to be issued shall be included in computing diluted EPS if the effect is dilutive. The dilutive effect of share-based compensation arrangements shall be computed using the treasury stock method. If the equity share options or other equity instruments are outstanding for only part of a period, the shares issuable shall be weighted to reflect the portion of the period during which the equity instruments were outstanding.

+ References+ Details

The portion of consolidated profit or loss for the period, net of income taxes, which is attributable to the parent. If the entity does not present consolidated financial statements, the amount of profit or loss for the period, net of income taxes.

+ References+ Details

Components of Other Income (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2010	Dec. 31, 2009
Dividends and interest income	$ 205	$ 197	$ 415	$ 400
Interest expense	(72)	(38)	(117)	(76)
Net recognized gains on investments	118	92	152	162
Net gains on derivatives	108	96	103	92
Net gains (losses) on foreign currency remeasurements	(27)	(23)	(69)	32
Other	0	46	(38)	43
Total	$ 332	$ 370	$ 446	$ 653

This item represents the net total realized and unrealized gain (loss) included in earnings for the period as a result of selling or holding marketable securities categorized as trading, available-for-sale, or held-to-maturity, including the unrealized holding gain or loss of held-to-maturity securities transferred to the trading security category and the cumulative unrealized gain or loss which was included in other comprehensive income (a separate component of shareholders' equity) for available-for-sale securities transferred to trading securities during the period. Additionally, this item would include any gains or losses realized during the period from the sale of investments accounted for under the cost method of accounting and losses recognized for other than temporary impairments of the subject investments.

+ References+ Details

Investment Components, Including Associated Derivatives (Detail) (USD $)
In Millions, unless otherwise specified

Dec. 31, 2010

Sep. 30, 2010

Jun. 30, 2010

Dec. 31, 2009

Sep. 30, 2009

Jun. 30, 2009

$ 48,499

$ 43,331

2,914

1,656

(139)

(445)

51,274

44,542

4,023

8,161

5,505

^[1]

9,422

8,823

6,076

37,229

31,283

^[1]

10,022

7,754

^[1]

Cash

1,811

1,661

1,811

1,661

1,811

1,661

Mutual funds

367

1,120

367

1,120

367

1,120

Certificates of deposit

1,100

348

1,100

348

742

358

280

US Government and Agency securities

26,535

21,036

137

167

(7)

(1)

26,665

21,202

1,103

1,822

25,562

19,380

Foreign government bonds

553

518

566

531

566

531

Mortgage-backed securities

2,629

3,137

112

135

(6)

(7)

2,735

3,265

2,735

3,265

Corporate notes and bonds

7,118

7,450

311

289

(14)

(18)

7,415

7,721

701

7,415

7,020

Municipal securities

527

726

(5)

(1)

526

747

120

526

627

Common and preferred Stock

7,197

6,640

2,337

1,030

(107)

(418)

9,427

7,252

9,427

7,252

Other investments

662

507

662

507

595

502

Commercial paper

188

188

175

$ 0

[1]	Derived from audited financial statements.

For an unclassified balance sheet, this item represents investments in debt and equity securities which are categorized neither as held-to-maturity nor trading. Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity (other comprehensive income), unless the Available-for-sale Security is designated as a hedge or is determined to have had an other than temporary decline in fair value below its amortized cost basis. All or a portion of the unrealized holding gain or loss of an Available-for-sale Security that is designated as being hedged in a fair value hedge shall be recognized in earnings during the period of the hedge, as should other than temporary declines in fair value below costs basis.

+ References+ Details

Investments in debt and equity securities which are categorized neither as trading securities nor held-to-maturity securities and which are intended be sold or mature within one year from the balance sheet date or the normal operating cycle, whichever is longer. Such securities are reported at fair value; unrealized gains and losses related to Available-for-sale securities are excluded from earnings and reported in a separate component of shareholders' equity (other comprehensive income), unless the Available-for-sale security is designated as a hedge or is determined to have had an other than temporary decline in fair value below its amortized cost basis. All or a portion of the unrealized holding gain or loss of an Available-for-sale Security that is designated as being hedged in a fair value hedge shall be recognized in earnings during the period of the hedge, as should other than temporary declines in fair value below costs basis.

+ References+ Details

Includes currency on hand as well as demand deposits with banks or financial institutions. It also includes other kinds of accounts that have the general characteristics of demand deposits in that the Entity may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. Cash equivalents, excluding items classified as marketable securities, include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months. Compensating balance arrangements that do not legally restrict the withdrawal or usage of cash amounts may be reported as Cash and Cash Equivalents, while legally restricted deposits held as compensating balances against borrowing arrangements, contracts entered into with others, or company statements of intention with regard to particular deposits should not be reported as cash and cash equivalents.

+ References+ Details

Unrealized Loss Position Investments (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2010	Jun. 30, 2010
Less than 12 Months - Fair Value	$ 3,933	$ 3,613
Less than 12 Months - Unrealized Losses	(110)	(360)
12 Months or Greater - Fair Value	279	297
12 Months or Greater - Unrealized Losses	(29)	(85)
Total Fair Value	4,212	3,910
Total Unrealized Losses	(139)	(445)
US Government and Agency securities
Less than 12 Months - Fair Value	2,013	216
Less than 12 Months - Unrealized Losses	(7)	(1)
12 Months or Greater - Fair Value	0	0
12 Months or Greater - Unrealized Losses	0	0
Total Fair Value	2,013	216
Total Unrealized Losses	(7)	(1)
Mortgage-backed securities
Less than 12 Months - Fair Value	79	105
Less than 12 Months - Unrealized Losses	(5)	(6)
12 Months or Greater - Fair Value	16	18
12 Months or Greater - Unrealized Losses	(1)	(1)
Total Fair Value	95	123
Total Unrealized Losses	(6)	(7)
Corporate notes and bonds
Less than 12 Months - Fair Value	635	1,124
Less than 12 Months - Unrealized Losses	(13)	(13)
12 Months or Greater - Fair Value	70	89
12 Months or Greater - Unrealized Losses	(1)	(5)
Total Fair Value	705	1,213
Total Unrealized Losses	(14)	(18)
Municipal securities
Less than 12 Months - Fair Value	255	66
Less than 12 Months - Unrealized Losses	(5)	(1)
12 Months or Greater - Fair Value	0	0
12 Months or Greater - Unrealized Losses	0	0
Total Fair Value	255	66
Total Unrealized Losses	(5)	(1)
Common and preferred Stock
Less than 12 Months - Fair Value	951	2,102
Less than 12 Months - Unrealized Losses	(80)	(339)
12 Months or Greater - Fair Value	193	190
12 Months or Greater - Unrealized Losses	(27)	(79)
Total Fair Value	1,144	2,292
Total Unrealized Losses	$ (107)	$ (418)

Debt Investment Maturities (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2010
Cost Basis
Due in one year or less	$ 21,169
Due after one year through five years	11,677
Due after five years through 10 years	2,397
Due after 10 years	3,219
Total	38,462
Estimated Fair Value
Due in one year or less	21,273
Due after one year through five years	11,887
Due after five years through 10 years	2,513
Due after 10 years	3,334
Total	$ 39,007

Derivatives - Additional Information (Detail) (USD $)	6 Months Ended
Derivatives - Additional Information (Detail) (USD $)	Dec. 31, 2010	Dec. 31, 2010 Derivatives Purchased	Jun. 30, 2010 Derivatives Purchased	Dec. 31, 2010 Derivatives Purchased Equity Contracts	Jun. 30, 2010 Derivatives Purchased Equity Contracts	Dec. 31, 2010 Derivatives Sold	Jun. 30, 2010 Derivatives Sold	Dec. 31, 2010 Derivatives Sold Equity Contracts	Jun. 30, 2010 Derivatives Sold Equity Contracts
Notional amounts of foreign exchange contracts designated as cash flow hedges						$ 11,600,000,000	$ 9,300,000,000
Notional amounts of foreign exchange contracts designated as fair value hedges						543,000,000	523,000,000
Notional amounts of foreign exchange contracts not designated as hedges		4,500,000,000	7,800,000,000			6,100,000,000	5,300,000,000
Notional amounts				1,500,000,000	918,000,000			1,100,000,000	472,000,000
Notional amounts of fixed-interest rate contracts not designated as hedges		1,000,000,000	3,100,000,000			433,000,000	1,800,000,000
Notional amounts of mortgage contracts purchased		645,000,000	305,000,000
Notional amounts of commodity contracts not designated as hedges		1,400,000,000	1,100,000,000			456,000,000	376,000,000
Minimum required liquidity under certain counterparty agreements	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.
Long-term unsecured debt rating	AAA
Estimated derivative net losses included in OCI that will be reclassified into earnings within 12 months	$ 104,000,000

Fair Values of Derivative Instruments (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2010	Jun. 30, 2010
Assets
Derivatives not designated as hedging instruments	$ 356	$ 210
Derivatives designated as hedging instruments	144	566
Total assets	500	776
Liabilities
Total liabilities	(470)	(165)
Short-term investments
Assets
Derivatives not designated as hedging instruments	310	176
Derivatives designated as hedging instruments	2	3
Other current assets
Assets
Derivatives not designated as hedging instruments	46	34
Derivatives designated as hedging instruments	142	563
Other current liabilities
Liabilities
Derivatives not designated as hedging instruments	(112)	(156)
Derivatives designated as hedging instruments	(358)	(9)
Foreign Exchange Contracts
Assets
Derivatives not designated as hedging instruments	58	49
Derivatives designated as hedging instruments	144	566
Total assets	202	615
Liabilities
Total liabilities	(406)	(69)
Foreign Exchange Contracts \| Short-term investments
Assets
Derivatives not designated as hedging instruments	12	15
Derivatives designated as hedging instruments	2	3
Foreign Exchange Contracts \| Other current assets
Assets
Derivatives not designated as hedging instruments	46	34
Derivatives designated as hedging instruments	142	563
Foreign Exchange Contracts \| Other current liabilities
Liabilities
Derivatives not designated as hedging instruments	(48)	(60)
Derivatives designated as hedging instruments	(358)	(9)
Equity Contracts
Assets
Derivatives not designated as hedging instruments	173	134
Derivatives designated as hedging instruments	0	0
Total assets	173	134
Liabilities
Total liabilities	(11)	(17)
Equity Contracts \| Short-term investments
Assets
Derivatives not designated as hedging instruments	173	134
Derivatives designated as hedging instruments	0	0
Equity Contracts \| Other current assets
Assets
Derivatives not designated as hedging instruments	0	0
Derivatives designated as hedging instruments	0	0
Equity Contracts \| Other current liabilities
Liabilities
Derivatives not designated as hedging instruments	(11)	(17)
Derivatives designated as hedging instruments	0	0
Interest Rate Contracts
Assets
Derivatives not designated as hedging instruments	18	12
Derivatives designated as hedging instruments	0	0
Total assets	18	12
Liabilities
Total liabilities	(6)	(33)
Interest Rate Contracts \| Short-term investments
Assets
Derivatives not designated as hedging instruments	18	12
Derivatives designated as hedging instruments	0	0
Interest Rate Contracts \| Other current assets
Assets
Derivatives not designated as hedging instruments	0	0
Derivatives designated as hedging instruments	0	0
Interest Rate Contracts \| Other current liabilities
Liabilities
Derivatives not designated as hedging instruments	(6)	(33)
Derivatives designated as hedging instruments	0	0
Credit Risk Contracts
Assets
Derivatives not designated as hedging instruments	11	7
Derivatives designated as hedging instruments	0	0
Total assets	11	7
Liabilities
Total liabilities	(13)	(41)
Credit Risk Contracts \| Short-term investments
Assets
Derivatives not designated as hedging instruments	11	7
Derivatives designated as hedging instruments	0	0
Credit Risk Contracts \| Other current assets
Assets
Derivatives not designated as hedging instruments	0	0
Derivatives designated as hedging instruments	0	0
Credit Risk Contracts \| Other current liabilities
Liabilities
Derivatives not designated as hedging instruments	(13)	(41)
Derivatives designated as hedging instruments	0	0
Commodity Contracts
Assets
Derivatives not designated as hedging instruments	96	8
Derivatives designated as hedging instruments	0	0
Total assets	96	8
Liabilities
Total liabilities	(34)	(5)
Commodity Contracts \| Short-term investments
Assets
Derivatives not designated as hedging instruments	96	8
Derivatives designated as hedging instruments	0	0
Commodity Contracts \| Other current assets
Assets
Derivatives not designated as hedging instruments	0	0
Derivatives designated as hedging instruments	0	0
Commodity Contracts \| Other current liabilities
Liabilities
Derivatives not designated as hedging instruments	(34)	(5)
Derivatives designated as hedging instruments	$ 0	$ 0

Gains (Losses) on Fair Value Hedges and Related Hedged Items (Detail) (Foreign Exchange Contracts, USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2010	Dec. 31, 2009
Foreign Exchange Contracts
Derivatives	$ 2	$ 89	$ (50)	$ (104)
Hedged items	(2)	(85)	48	103
Total	$ 0	$ 4	$ (2)	$ (1)

Gains (Losses) Related to Cash Flow Hedges (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2010	Dec. 31, 2009
Effective Portion
Gain (loss) recognized in OCI, net of tax effect of $(24) for the three months ended and $(267) for the six months ended December 31, 2010, and $1 for the three months and $(111) for the six months ended December 31, 2009	$ (45)	$ 2	$ (497)	$ (207)
Gain reclassified from OCI into revenue	55	68	139	237
Amount Excluded from Effectiveness Assessment and Ineffective Portion
Gain (loss) recognized in other income	$ (16)	$ 26	$ (103)	$ (14)

Assets and Liabilities Measured at Fair Value on a Recurring Basis (Detail) (USD $)
In Millions, unless otherwise specified

Dec. 31, 2010

Jun. 30, 2010

$ 48,527

$ 42,645

Mutual funds

367

1,120

Certificates of deposit

1,100

348

US Government and Agency securities

26,664

21,229

Foreign government bonds

573

533

Mortgage-backed securities

2,736

3,264

Corporate notes and bonds

7,238

7,627

Municipal securities

526

747

Common and preferred Stock

9,148

7,036

Derivative assets

175

569

Derivative liabilities

224

Commercial paper

172

Level 1

30,448

24,842

Level 1 | Mutual funds

367

1,120

Level 1 | Certificates of deposit

Level 1 | US Government and Agency securities

20,722

16,473

Level 1 | Foreign government bonds

257

239

Level 1 | Mortgage-backed securities

Level 1 | Corporate notes and bonds

Level 1 | Municipal securities

Level 1 | Common and preferred Stock

9,085

6,988

Level 1 | Derivative assets

Level 1 | Derivative liabilities

Level 1 | Commercial paper

Level 2

18,213

17,829

Level 2 | Mutual funds

Level 2 | Certificates of deposit

1,100

348

Level 2 | US Government and Agency securities

5,942

4,756

Level 2 | Foreign government bonds

316

294

Level 2 | Mortgage-backed securities

2,736

3,264

Level 2 | Corporate notes and bonds

7,067

7,460

Level 2 | Municipal securities

526

747

Level 2 | Common and preferred Stock

Level 2 | Derivative assets

468

745

Level 2 | Derivative liabilities

456

137

Level 2 | Commercial paper

172

Level 3

191

181

Level 3 | Mutual funds

Level 3 | Certificates of deposit

Level 3 | US Government and Agency securities

Level 3 | Foreign government bonds

Level 3 | Mortgage-backed securities

Level 3 | Corporate notes and bonds

171

167

Level 3 | Municipal securities

Level 3 | Common and preferred Stock

Level 3 | Derivative assets

Level 3 | Derivative liabilities

Level 3 | Commercial paper

Gross Fair Value

48,852

42,852

Gross Fair Value | Mutual funds

367

1,120

Gross Fair Value | Certificates of deposit

1,100

348

Gross Fair Value | US Government and Agency securities

26,664

21,229

Gross Fair Value | Foreign government bonds

573

533

Gross Fair Value | Mortgage-backed securities

2,736

3,264

Gross Fair Value | Corporate notes and bonds

7,238

7,627

Gross Fair Value | Municipal securities

526

747

Gross Fair Value | Common and preferred Stock

9,148

7,036

Gross Fair Value | Derivative assets

500

776

Gross Fair Value | Derivative liabilities

549

222

Gross Fair Value | Commercial paper

172

Netting

(325)

^[1]

(207)

^[1]

Netting | Mutual funds

^[1]

Netting | Certificates of deposit

^[1]

Netting | US Government and Agency securities

^[1]

Netting | Foreign government bonds

^[1]

Netting | Mortgage-backed securities

^[1]

Netting | Corporate notes and bonds

^[1]

Netting | Municipal securities

^[1]

Netting | Common and preferred Stock

^[1]

Netting | Derivative assets

(325)

^[1]

(207)

^[1]

Netting | Derivative liabilities

(325)

^[1]

(205)

^[1]

Netting | Commercial paper

$ 0

^[1]

[1]	These amounts represent the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement exists and fair value adjustments related to our own credit risk and counterparty credit risk.

Reconciliation of Total Assets Measured at Fair Value on a Recurring Basis to the Balance Sheet Presentation (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2010	Jun. 30, 2010
Net fair value of assets measured at fair value on a recurring basis	$ 48,527	$ 42,645
Cash	1,811	1,661
Common and preferred stock measured at fair value on a nonrecurring basis	279	216
Other investments measured at fair value on a nonrecurring basis	596	502
Less derivative assets classified as other current assets	(16)	(544)
Other	77	62
Recorded basis of investment components	$ 51,274	$ 44,542

+ References+ Details

Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended				6 Months Ended
	Dec. 31, 2010	Sep. 30, 2010	Dec. 31, 2009	Sep. 30, 2009	Dec. 31, 2010	Dec. 31, 2009
Balance, beginning of period	$ 188	$ 181	$ 188	$ 263	$ 181	$ 263
Total realized and unrealized gains (losses):
Included in other income (expense)	1	9	2	(1)
Included in other comprehensive income	2	(2)	11	(74)
Balance, end of period	191	188	201	188	191	201
Change in unrealized gains (losses) included in other income (expense) related to assets held as of period end	1		2		10	1
Corporate notes and bonds
Balance, beginning of period	167	167	180	253	167	253
Total realized and unrealized gains (losses):
Included in other income (expense)	2	2	1	1
Included in other comprehensive income	2	(2)	11	(74)
Balance, end of period	171	167	192	180	171	192
Change in unrealized gains (losses) included in other income (expense) related to assets held as of period end	2		1		4	2
Common and preferred Stock
Balance, beginning of period	5	5	5	5	5	5
Total realized and unrealized gains (losses):
Included in other income (expense)	0	0	0	0
Included in other comprehensive income	0	0	0	0
Balance, end of period	5	5	5	5	5	5
Change in unrealized gains (losses) included in other income (expense) related to assets held as of period end	0		0		0	0
Derivative assets
Balance, beginning of period	16	9	3	5	9	5
Total realized and unrealized gains (losses):
Included in other income (expense)	(1)	7	1	(2)
Included in other comprehensive income	0	0	0	0
Balance, end of period	15	16	4	3	15	4
Change in unrealized gains (losses) included in other income (expense) related to assets held as of period end	$ (1)		$ 1		$ 6	$ (1)

Components of Inventories (Detail) (USD $)
In Millions, unless otherwise specified

Dec. 31, 2010

Jun. 30, 2010

Raw materials

$ 151

$ 172

Work in process

Finished goods

656

552

Total

$ 861

$ 740

^[1]

[1]	Derived from audited financial statements.

Carrying Amount of Goodwill (Detail) (USD $)
In Millions, unless otherwise specified

3 Months Ended

6 Months Ended

Dec. 31, 2010

$ 12,471

$ 12,394

^[1]

(12)

12,502

Windows & Windows Live Division

Server and Tools

1,125

1,118

1,138

Online Services Division

6,373

6,373

Microsoft Business Division

4,102

4,024

(11)

4,091

Entertainment and Devices Division

782

802

(1)

(21)

$ 811

[1]	Derived from audited financial statements.

Finite-Lived Intangible Assets (Detail) (USD $)
In Millions, unless otherwise specified

Dec. 31, 2010

Jun. 30, 2010

$ 3,893

$ 3,887

(2,901)

(2,729)

992

1,158

^[1]

Contract-based

1,067

1,075

(935)

(914)

132

161

Technology-based

2,321

2,308

(1,639)

(1,521)

682

787

Marketing-related

113

114

(91)

(86)

Customer-related

392

390

(236)

(208)

2011 (excluding the six months ended December 31, 2010)

$ 156

$ 182

[1]	Derived from audited financial statements.

Estimated Future Amortization Expense Related to Intangible Assets (Detail) (USD $)
In Millions, unless otherwise specified

6 Months Ended

Dec. 31, 2010

Jun. 30, 2010

$ 252

392

251

$ 992

$ 1,158

^[1]

[1]	Derived from audited financial statements.

Debt - Additional Information (Detail) (USD $)	1 Months Ended		3 Months Ended	1 Months Ended			1 Months Ended	6 Months Ended
Debt - Additional Information (Detail) (USD $)	Nov. 30, 2010	Jun. 30, 2010	Dec. 31, 2010	Jun. 30, 2010 Debt	Jun. 30, 2010 Equity	Dec. 31, 2010 Notes Issued September 2010	Jun. 30, 2010 Convertible Debt Due June 15th 2013	Dec. 31, 2010 Convertible Debt Due June 15th 2013
Commercial paper, repaid			$ 1,000,000,000
Commercial paper			0
364-day Credit facility	1,000,000,000
364-day Credit facility expiry date	2010-11-05
Long-term debt			9,700,000,000
Estimated fair value of our long-term debt, including convertible debt			9,800,000,000
Notes			8,500,000,000			4,750,000,000
Issued convertible unsecured debt							1,250,000,000
Debt instrument maturity date							Jun. 15, 2013	Jun. 15, 2013
Principal amount of each convertible note							1,000
Conversion shares of Microsoft common stock of convertible notes							29.94
Conversion price per share of convertible notes							33.40
Terms of conversion change date							Mar. 15, 2013
Proceeds from convertible debt offering		1,240,000,000		1,180,000,000	58,000,000
Capped call options on Microsoft common stock, cap price		37.16
Value of purchased capped calls		$ 40,000,000

Long-term Debt (Detail) (USD $) In Millions, unless otherwise specified	1 Months Ended	6 Months Ended
	Jun. 30, 2010	Dec. 31, 2010
Notes		$ 8,500
Unamortized discount		(79)
Total		9,671
Notes 0.875 Percent Due September 27th 2013
Notes		1,000
Interest Rate		0.875%
Debt maturity date		Sep. 27, 2013
Notes 0.875 Percent Due September 27th 2013 \| Semi Annual Payment, First Payment
Debt instrument, interest payable date		March 27
Interest payable, date of record		March 15
Notes 0.875 Percent Due September 27th 2013 \| Semi Annual Payment, Second Payment
Debt instrument, interest payable date		September 27
Interest payable, date of record		September 15
Notes 2.95 Percent Due June 1st 2014
Notes		2,000
Interest Rate		2.95%
Debt maturity date		Jun. 01, 2014
Notes 2.95 Percent Due June 1st 2014 \| Semi Annual Payment, First Payment
Debt instrument, interest payable date		June 1
Interest payable, date of record		May 15
Notes 2.95 Percent Due June 1st 2014 \| Semi Annual Payment, Second Payment
Debt instrument, interest payable date		December 1
Interest payable, date of record		November 15
Notes 1.625 Percent Due September 25th 2015
Notes		1,750
Interest Rate		1.625%
Debt maturity date		Sep. 25, 2015
Notes 1.625 Percent Due September 25th 2015 \| Semi Annual Payment, First Payment
Debt instrument, interest payable date		March 25
Interest payable, date of record		March 15
Notes 1.625 Percent Due September 25th 2015 \| Semi Annual Payment, Second Payment
Debt instrument, interest payable date		September 25
Interest payable, date of record		September 15
Notes 4.2 Percent Due June 1st 2019
Notes		1,000
Interest Rate		4.20%
Debt maturity date		Jun. 01, 2019
Notes 4.2 Percent Due June 1st 2019 \| Semi Annual Payment, First Payment
Debt instrument, interest payable date		June 1
Interest payable, date of record		May 15
Notes 4.2 Percent Due June 1st 2019 \| Semi Annual Payment, Second Payment
Debt instrument, interest payable date		December 1
Interest payable, date of record		November 15
Notes 3.0 Percent Due October 1st 2020
Notes		1,000
Interest Rate		3.00%
Debt maturity date		Oct. 01, 2020
Notes 3.0 Percent Due October 1st 2020 \| Semi Annual Payment, First Payment
Debt instrument, interest payable date		April 1
Interest payable, date of record		March 15
Notes 3.0 Percent Due October 1st 2020 \| Semi Annual Payment, Second Payment
Debt instrument, interest payable date		October 1
Interest payable, date of record		September 15
Notes 5.2 Percent Due June 1st 2039
Notes		750
Interest Rate		5.20%
Debt maturity date		Jun. 01, 2039
Notes 5.2 Percent Due June 1st 2039 \| Semi Annual Payment, First Payment
Debt instrument, interest payable date		June 1
Interest payable, date of record		May 15
Notes 5.2 Percent Due June 1st 2039 \| Semi Annual Payment, Second Payment
Debt instrument, interest payable date		December 1
Interest payable, date of record		November 15
Notes 4.5 Percent Due October 1st 2040
Notes		1,000
Interest Rate		4.50%
Debt maturity date		Oct. 01, 2040
Notes 4.5 Percent Due October 1st 2040 \| Semi Annual Payment, First Payment
Debt instrument, interest payable date		April 1
Interest payable, date of record		March 15
Notes 4.5 Percent Due October 1st 2040 \| Semi Annual Payment, Second Payment
Debt instrument, interest payable date		October 1
Interest payable, date of record		September 15
Convertible Debt Due June 15th 2013
Convertible notes		$ 1,250
Interest Rate		0.00%
Debt maturity date	Jun. 15, 2013	Jun. 15, 2013

Income Taxes - Additional Information (Detail) (USD $) In Billions, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2010	Dec. 31, 2009	Jun. 30, 2010
Effective tax rates	22.00%	25.00%	23.00%	25.00%
Tax contingencies and other tax liabilities	$ 6.9		$ 6.9		$ 6.9

Commitments And Guarantees - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	1 Months Ended	6 Months Ended
	Dec. 04, 2009	Dec. 31, 2010
Agreement entry date	Dec. 04, 2009
Term of Yahoo! agreement		10Y
Yahoo! agreement becoming subject to termination provisions		after five years based on performance
Revenue per search guarantee term		18 months
Revenue per search guarantee calculation description		These guarantees are calculated, paid and trued-up periodically based on the cumulative reduction in revenue per search, if any, during the 18 month period from pre-implementation levels, except in the case of the U.S. and Canada where performance during each of the first two calendar quarters after implementation is independent and not cumulative.
Revenue Per Search Guarantee \| Upper Limit
Estimated total cost of the revenue per search guarantees		$ 150

Product Warranty Liabilities (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2010	Dec. 31, 2009
Balance, beginning of period	$ 214	$ 289	$ 240	$ 342
Accrual for warranties issued	19	61	32	94
Adjustments to pre-existing warranties	0	(2)	0	(2)
Settlements of warranty claims	(31)	(40)	(70)	(126)
Balance, end of period	$ 202	$ 308	$ 202	$ 308

Contingencies - Additional Information (Detail) (USD $)			6 Months Ended			1 Months Ended			1 Months Ended			1 Months Ended			1 Months Ended				1 Months Ended
Contingencies - Additional Information (Detail) (USD $)	Dec. 31, 2010 Pending or Threatened Litigation Patents	Dec. 31, 2010 Contingencies Disclosed in Contingencies Note	Dec. 31, 2010 Government Competition Law Matters	Dec. 31, 2010 Antitrust, Unfair Competition, And Overcharge Class Actions	Dec. 31, 2010 Antitrust, Unfair Competition, And Overcharge Class Actions United States	Mar. 31, 2010 Antitrust, Unfair Competition, And Overcharge Class Actions British Columbia, Ontario, and Quebec, Canada	Dec. 31, 2010 Antitrust, Unfair Competition, And Overcharge Class Actions British Columbia, Ontario, and Quebec, Canada	Dec. 31, 2010 Antitrust, Unfair Competition, And Overcharge Class Actions British Columbia, Ontario, and Quebec, Canada Cases Stayed	Jun. 30, 2005 Other Antitrust Litigation and Claims Novell	Nov. 30, 2004 Other Antitrust Litigation and Claims Novell	Oct. 31, 2010 Patent And Intellectual Property Claims Motorola, Defendant	Jun. 30, 2008 Patent And Intellectual Property Claims Alcatel-Lucent	Apr. 30, 2008 Patent And Intellectual Property Claims Alcatel-Lucent	Dec. 31, 2008 Patent And Intellectual Property Claims Alcatel-Lucent	Apr. 30, 2009 Patent And Intellectual Property Claims Uniloc	Aug. 31, 2009 Patent And Intellectual Property Claims i4i	May 31, 2009 Patent And Intellectual Property Claims i4i	Nov. 30, 2010 Patent And Intellectual Property Claims Motorola, Plaintiff	Apr. 30, 2008 Patent And Intellectual Property Claims Video Alcatel-Lucent	Apr. 30, 2008 Patent And Intellectual Property Claims User Interface Alcatel-Lucent	Apr. 30, 2008 Patent And Intellectual Property Claims User Interface Patent Infringements Alcatel-Lucent	Nov. 30, 2010 Patent And Intellectual Property Claims US District Court, Wisconsin Motorola, Plaintiff	Nov. 30, 2010 Patent And Intellectual Property Claims US District Court, Florida Motorola, Plaintiff
Resolution description			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. The Final Judgments are scheduled to expire in May 2011.
Dismissal description				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.
Agreement description				We have reached agreements to settle all claims that have been made to date in 19 states and the District of Columbia.
Maximum value of vouchers to be issued					$ 2,700,000,000
Total estimated cost of state overcharge class action cases, minimum					1,900,000,000
Total estimated cost of state overcharge class action cases, maximum					2,000,000,000
Accrual for loss contingency, ending balance					593,000,000
Settlement payments					1,300,000,000
Number of pending claims							3	2
Case classification						In March 2010, the court in the British Columbia case certified it as a class action.
Number of claims dismissed									4
Number of claims filed										6												2	1
Number of patents tried																			1	3
Unfavorable jury verdict - number of patents																					2
Damages assessed												512,000,000	367,000,000		388,000,000	40,000,000	200,000,000
Interest on damages assessed												145,000,000				37,000,000
Remaining in dispute														500,000,000
Number of patents allegedly infringed											9							16
Other infringement cases pending	45
Accrual for disclosed loss contingencies, current, ending balance		877,000,000
Accrual for disclosed loss contingencies, noncurrent, ending balance		336,000,000
Amount not accrued for estimated maximum losses for disclosed loss contingencies		$ 950,000,000

Share Repurchases (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2010	Dec. 31, 2009
Shares of common stock repurchased	188	125	351	183
Value of common stock repurchased	$ 5,000	$ 3,583	$ 9,000	$ 5,028

Dividends Declared (Detail) (USD $)	3 Months Ended				6 Months Ended
Dividends Declared (Detail) (USD $)	Dec. 31, 2010	Sep. 30, 2010	Dec. 31, 2009	Sep. 30, 2009	Dec. 31, 2010	Dec. 31, 2009
Declaration Date	Dec. 15, 2010	Sep. 21, 2010	Dec. 09, 2009	Sep. 18, 2009
Dividend Per Share	$ 0.16	$ 0.16	$ 0.13	$ 0.13	$ 0.32	$ 0.26
Record Date	Feb. 17, 2011	Nov. 18, 2010	Feb. 18, 2010	Nov. 19, 2009
Total Amount	$ 1,344	$ 1,363	$ 1,139	$ 1,152
Payment Date	Mar. 10, 2011	Dec. 09, 2010	Mar. 11, 2010	Dec. 10, 2009	Mar. 10, 2011	Mar. 11, 2010

Segment Revenue and Operating Income (Loss) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2010	Dec. 31, 2009
Revenue	$ 19,953	$ 19,022	$ 36,148	$ 31,942
Reconciling amounts	(587)	707	(1,364)	(1,344)
Operating income (loss)	8,165	8,513	15,281	12,995
Windows & Windows Live Division
Revenue	4,985	5,361	9,690	9,590
Operating income (loss)	3,189	3,575	6,393	6,392
Server and Tools
Revenue	4,392	3,980	8,354	7,528
Operating income (loss)	1,758	1,421	3,352	2,610
Online Services Division
Revenue	691	578	1,218	1,065
Operating income (loss)	(562)	(477)	(1,140)	(973)
Microsoft Business Division
Revenue	5,811	4,868	10,908	9,367
Operating income (loss)	3,731	2,924	7,038	5,687
Entertainment and Devices Division
Revenue	3,653	2,417	5,422	3,850
Operating income (loss)	636	363	1,002	623
Unallocated and other
Revenue	$ 421	$ 1,818	$ 556	$ 542

Significant Reconciling Items (Detail) (USD $)
In Millions, unless otherwise specified

3 Months Ended

6 Months Ended

Dec. 31, 2010

Dec. 31, 2009

Dec. 31, 2010

Dec. 31, 2009

$ (587)

$ 707

$ (1,364)

$ (1,344)

Corporate-level activity

(963)

^[1]

(1,217)

^[1]

(2,011)

^[1]

(2,052)

^[1]

Stock-based compensation expense

108

244

268

Revenue reconciling amounts

333

^[2]

1,791

^[2]

464

^[2]

428

^[2]

Other