Microsoft (MSFT) 10-Q 23 Oct 09 2010 Q1 Quarterly report Financial data

Income Statements

Income Statements (USD $)
In Millions, except Per Share data	3 Months Ended Sep. 30, 2009	3 Months Ended Sep. 30, 2008
Revenue	$12,920	$15,061
Operating expenses:
Cost of revenue	2,842	2,848
Research and development	2,065	2,283
Sales and marketing	2,790	3,044
General and administrative	741	887
Employee severance	0	0
Total operating expenses	8,438	9,062
Operating income	4,482	5,999
Other income (expense)	283	(8)
Income before income taxes	4,765	5,991
Provision for income taxes	1,191	1,618
Net income	$3,574	$4,373
Earnings per share:
Basic	0.4	0.48
Diluted	0.4	0.48
Weighted average shares outstanding:
Basic	8,914	9,084
Diluted	8,983	9,183
Cash dividends declared per common share	0.13	0.13

Balance Sheets

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

Balance Sheets (Parenthetical)

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

Cash Flow Statements

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

Stockholders' Equity Statements

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

NOTE 1 ACCOUNTING POLICIES

NOTE 1 ACCOUNTING POLICIES
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 1 ACCOUNTING POLICIES	NOTE 1ACCOUNTING POLICIES Basis of Presentation In the opinion of management, the accompanying balance sheets and related interim statements of income, cash flows, and stockholders equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples include: estimates of loss contingencies, product warranties, product life cycles, product returns, and stock-based compensation forfeiture rates; assumptions such as the elements comprising a software arrangement, including the distinction between upgrades/enhancements and new products; when technological feasibility is achieved for our products; the potential outcome of future tax consequences of events that have been recognized in our financial statements or tax returns; estimating the fair value and/or goodwill impairment for our reporting units; and determining when investment impairments are other-than-temporary. Actual results and outcomes may differ from managements estimates and assumptions. Interim results are not necessarily indicative of results for a full year. The information included in this Form10-Q should be read in conjunction with information included in the Microsoft Corporation 2009 Form10-K filed on July30, 2009 with the U.S. Securities and Exchange Commission. Principles of Consolidation The financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated. Equity investments through which we exercise significant influence but do not exercise control and are not the primary beneficiary are accounted for using the equity method. Investments through which we are not able to exercise significant influence over the investee and which do not have readily determinable fair values are accounted for under the cost method. Subsequent Events We evaluated events occurring between the end of our fiscal quarter, September30, 2009 and October23, 2009 when the financial statements were issued. Recently Adopted Accounting Guidance On July1, 2009, we adopted authoritative guidance issued by the Financial Accounting Standards Board (FASB) on business combinations. The guidance retains the fundamental requirements that the acquisition method of accounting (previously referred to as the purchase method of accounting) be used for all business combinations, but requires a number of changes, including changes in the way assets and liabilities are recognized and measured as a result of business combinations. It also requires the capitalization of in-process research and development at fair value and requires the expensing of acquisition-related costs as incurred. We have applied this guidance to business combinations completed since July1, 2009. On July1, 2009, we adopted the authoritative guidance issued by the FASB that changes the accounting and reporting for non-cont

NOTE 2 EARNINGS PER SHARE

NOTE 2 EARNINGS PER SHARE
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 2 EARNINGS PER SHARE	NOTE 2EARNINGS PER SHARE Basic earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed on the basis of 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 September30, 2009 2008 Net income available for common shareholders (A) $ 3,574 $ 4,373 Weighted average shares of common stock outstanding (B) 8,914 9,084 Dilutive effect of stock-based awards 69 99 Common stock and common stock equivalents (C) 8,983 9,183 Earnings per share: Basic (A/B) $ 0.40 $ 0.48 Diluted (A/C) $ 0.40 $ 0.48 We excluded 224million shares and 136million shares underlying stock-based awards from the calculations of diluted earnings per share for the three months ended September30, 2009 and September30, 2008, respectively, because their inclusion would have been anti-dilutive.

NOTE 3 OTHER INCOME

NOTE 3 OTHER INCOME (EXPENSE)
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 3 OTHER INCOME (EXPENSE)	NOTE 3OTHER INCOME (EXPENSE) The components of other income (expense) were as follows: (In millions) Three Months Ended September30, 2009 2008 Dividends and interest $ 165 $ 207 Net recognized gains on investments 70 129 Net losses on derivatives (4 ) (165 ) Net gains (losses) on foreign currency remeasurements 55 (179 ) Other (3 ) Total $ 283 $ (8 ) Net recognized gains on investments included other-than-temporary impairments of $18 million during the first quarter of fiscal year 2010 as compared with $72 million during the first quarter of fiscal year 2009.

NOTE 4 INVESTMENTS

NOTE 4 INVESTMENTS
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 4 INVESTMENTS	NOTE 4INVESTMENTS Investment Components The components of investments, including associated derivatives, were as follows: (In millions) CostBasis Unrealized Gains Unrealized Losses Recorded Basis Cash and Cash Equivalents Short-term Investments Equity and Other Investments September30, 2009 Cash $ 2,104 $ $ $ 2,104 $ 2,104 $ $ Mutual funds 1,325 1 (6 ) 1,320 1,224 96 Commercial paper 1,726 1,726 898 828 Certificates of deposit 1,926 1,926 1,771 155 U.S. government and agency securities 15,421 73 (1 ) 15,493 2,432 13,061 Foreign government bonds 3,599 95 (1 ) 3,693 3,693 Mortgage-backed securities 4,283 107 (4 ) 4,386 4,386 Corporate notes and bonds 5,344 304 (17 ) 5,631 201 5,430 Municipal securities 436 4 440 193 247 Common and preferred stock 4,373 1,233 (81 ) 5,525 5,525 Other investments 490 490 9 481 Total $ 41,027 $ 1,817 $ (110 ) $ 42,734 $ 8,823 $ 27,905 $ 6,006 (In millions) CostBasis Unrealized Gains Unrealized Losses Recorded Basis Cash andCash Equivalents Short-term Investments Equity andOther Investments June30, 2009 Cash $ 2,064 $ $ $ 2,064 $ 2,064 $ $ Mutual funds 1,007 (25 ) 982 900 82 Commercial paper 2,601 2,601 400 2,201 Certificates of deposit 555 555 275 280 U.S. government and agency securities 13,450 21 (5 ) 13,466 2,369 11,097 Foreign government bonds 3,450 71 (4 ) 3,517 3,517 Mortgage-backed securities 3,353 81 (16 ) 3,418 3,418 Corporate notes and bonds 4,361 287 (52 ) 4,596 4,596 Municipal securities 255 2 (1 ) 256 68 188 Common and preferred stock 4,015 627 (182 ) 4,460 4,460 Other investments 465 465 (8 ) 473 Total $ 35,576 $ 1,089 $ (285 ) $ 36,380 $ 6,076 $ 25,371 $ 4,933 Unrealized Losses on Investments Investments with continuous unrealized losses for l

NOTE 5 DERIVATIVES

NOTE 5 DERIVATIVES
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 5 DERIVATIVES	NOTE 5DERIVATIVES We use derivative instruments to manage risks related to foreign currencies, equity prices, interest rates, and credit; to enhance investment returns; and to facilitate portfolio diversification. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment. All notional amounts presented below are measured in U.S. currency equivalents. Foreign Currency Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency hedge positions. Options and forward contracts are used to hedge a portion of forecasted international revenue for up to three years in the future and are designated as cash-flow hedging instruments. Principal currencies hedged include the euro, Japanese yen, British pound, and Canadian dollar. As of September30, 2009, the total notional amount of such foreign exchange contracts was $8.7 billion.Foreign currency risks related to certain non-U.S. dollar denominated securities are hedged using foreign exchange forward contracts that are designated as fair-value hedging instruments. As of September30, 2009, the total notional amount of these foreign exchange contracts sold was $3.7 billion.Certain options and forwards not designated as hedging instruments are also used to manage the variability in exchange rates on accounts receivable, cash, and intercompany positions, and to manage other foreign currency exposures.As of September30, 2009, the total notional amounts of these foreign exchange contracts purchased and sold were $2.6 billion and $2.2 billion, respectively. Equity Securities held in our equity and other investments portfolio are subject to market price risk.Market price risk is managed relative to broad-based global and domestic equity indices using certain convertible preferred investments, options, futures, and swap contracts not designated as hedging instruments. From time to time, to hedge our price risk, we may use and designate equity derivatives as hedging instruments, including puts, calls, swaps, and forwards.As of September30, 2009, the total notional amounts of designated and non-designated equity contracts purchased and sold were immaterial. Interest Rate Securities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We manage the average maturity of our fixed-income portfolio to achieve economic returns that correlate to certain broad-based fixed-income indices using exchange-traded option and futures contracts and over-the-counter swap and option contracts, none of which are designated as hedging instruments. As of September30, 2009, the total notional amount of fixed-interest rate contracts purchased and sold were $1.6 billion and $946 million, respectively. In addition, we use To Be Announced forward purchase commitments of mortgage-backed assets to gain exposure to

NOTE 6 FAIR VALUE MEASUREMEN

NOTE 6 FAIR VALUE MEASUREMENTS
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 6 FAIR VALUE MEASUREMENTS	NOTE 6FAIR 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 1inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. Our Level 1 non-derivative investments primarily include domestic and international equities, U.S. treasuries, exchange-traded mutual funds, and agency securities.Our Level 1 derivative assets and liabilities include those traded on exchanges. Level 2inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities. Our Level 2 non-derivative investments consist primarily of corporate notes and bonds, foreign government bonds, mortgage-backed securities, commercial paper, and certain agency securities. Our Level 2 derivative assets and liabilities primarily include certain over-the-counter options, futures, and swap contracts. Level 3inputs are generally unobservable and typically reflect managements estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 non-derivative assets primarily comprise investments in certain corporate bonds.We value these corporate bonds using internally developed valuation models, inputs to which include interest rate curves, credit spreads, stock prices, and volatilities. Unobservable inputs used in these models are significant to the fair values of the investments. Our Level 3 derivative assets and liabilities primarily comprise derivatives for foreign equities. In certain cases, market-based observable inputs are not available and we use management judgment to develop assumptions to determine fair value for these derivatives. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables present the fair values of our financial instruments that are measured at fair value on a recurring basis: (In millions) Level1 Level2 Level3 GrossFair Value Netting (1) Net Fair Value September30, 2009 Assets

NOTE 7 INVENTORIES

NOTE 7 INVENTORIES
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 7 INVENTORIES	NOTE 7INVENTORIES The components of inventories were as follows: (In millions) September30, 2009 June30, 2009 Raw materials $ 165 $ 170 Work in process 30 45 Finished goods 955 502 Total $ 1,150 $ 717

NOTE 8 ACQUISITIONS

NOTE 8 ACQUISITIONS
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 8 ACQUISITIONS	NOTE 8ACQUISITIONS We acquired two entities during the three months ended September30, 2009, for total consideration of $46 million, substantially all of which was paid in cash. These entities have been consolidated into our results of operations since their respective acquisition dates. Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the aggregate, were not material to our consolidated results of operations.

NOTE 9 GOODWILL

NOTE 9 GOODWILL
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 9 GOODWILL	NOTE 9GOODWILL Following are details of the changes in our goodwill balances during the three months ended September30, 2009: (In millions) Balance Acquisitions Purchase Accounting Adjustments andOther Balance June30, 2009 September30, 2009 Windows Windows Live Division $ 77 $ $ $ 77 Server and Tools 1,038 33 (1 ) 1,070 Online Services Division 6,657 (24 ) 6,633 Microsoft Business Division 3,927 3 68 3,998 Entertainment and Devices Division 804 804 Total $ 12,503 $ 36 $ 43 $ 12,582 None of the amounts recorded as goodwill are expected to be deductible for tax purposes. The measurement period for purchase price allocations ends as soon as information on the facts and circumstances becomes available, but does not exceed 12 months.Any change in the fair value of the net assets of the acquired companies changes the amount of the purchase price allocable to goodwill. Adjustments in the purchase price allocation may require a recasting of the amounts allocated to goodwill retroactive to the period in which the acquisition occurred. Any change in the goodwill amounts resulting from foreign currency translations are presented as other in the table above. In connection with the planned disposal of Razorfish, we performed an interim impairment analysis of our Online Services Division goodwill balance during the first quarter of fiscal year 2010. No impairment of goodwill was identified.

NOTE 10 INTANGIBLE ASSETS

NOTE 10 INTANGIBLE ASSETS
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 10 INTANGIBLE ASSETS	NOTE 10INTANGIBLE ASSETS The components of intangible assets, all of which are finite-lived, were as follows: (In millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount September30, 2009 June30, 2009 Contract-based $ 1,087 $ (869 ) $ 218 $ 1,087 $ (855 ) $ 232 Technology-based 2,091 (1,188 ) 903 2,033 (1,090 ) 943 Marketing-related 184 (105 ) 79 188 (97 ) 91 Customer-related 721 (268 ) 453 732 (239 ) 493 Total $ 4,083 $ (2,430 ) $ 1,653 $ 4,040 $ (2,281 ) $ 1,759 We generally amortize acquired intangibles on a straight-line basis over their estimated weighted average lives. Intangible assets amortization expense was $149 million for the three months ended September30, 2009 as compared with $140 million for the three months ended September30, 2008. The following table outlines the estimated future amortization expense related to intangible assets held at September30, 2009: (In millions) Year Ending June30, 2010 (excluding the three months ended September 30, 2009) $ 435 2011 515 2012 459 2013 192 2014 and thereafter 52 Total $ 1,653

NOTE 11 DEBT

NOTE 11 DEBT
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 11 DEBT	NOTE 11DEBT In September 2008, our Board of Directors authorized debt financings of up to $6.0 billion. Our initial commercial paper program provided for the issuance and sale of up to $2.0 billion. Subsequent to the issuance of our long-term debt in May 2009, we increased the commercial paper program and, during the current quarter, issued an additional $250 million of commercial paper. As of September30, 2009, we had $2.25 billion of commercial paper and $3.75 billion of long-term debt issued and outstanding. Short-term Debt As of September30, 2009, our $2.25 billion of commercial paper issued and outstanding had a weighted average interest rate, including issuance costs, of 0.18% and maturities of 49 to 127 days. The estimated fair value of this commercial paper approximates its carrying value. We also had two credit facilities aggregating $3.0 billion with no amounts drawn against them as of September30, 2009. These facilities serve as a back-up for our commercial paper program. Our $2.0 billion and $1.0 billion credit facilities expire on November6, 2009 and March12, 2010, respectively. As of September30, 2009, we were in compliance with the financial covenant in both credit agreements, which requires a coverage ratio maintained of at least three times earnings before interest, taxes, depreciation, and amortization to interest expense. Long-term Debt As of September30, 2009, the total carrying value and estimated fair value of our long-term debt were $3.75 billion and $3.81 billion, respectively. The estimated fair value is based on quoted prices for our publicly-traded debt as of September30, 2009.

NOTE 12 INCOME TAXES

NOTE 12 INCOME TAXES
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 12 INCOME TAXES	NOTE 12INCOME TAXES Our effective tax rates were 25% and 27% for the three months ended September30, 2009 and 2008, respectively.The fiscal year 2010 rate reflects a higher mix of foreign earnings taxed at lower rates. Tax contingencies and other tax liabilities were $5.8 billion as of September30, 2009 and $5.5 billion as of June30, 2009, and were included in other long-term liabilities.

NOTE 13 UNEARNED REVENUE

NOTE 13 UNEARNED REVENUE
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 13 UNEARNED REVENUE	NOTE 13UNEARNED REVENUE The components of unearned revenue were as follows: (In millions) September30, 2009 June30, 2009 Volume licensing programs $ 10,527 $ 11,350 Undelivered elements 2,452 1,083 Other 1,789 1,851 Total $ 14,768 $ 14,284 Unearned revenue by segment was as follows: (In millions) September30, 2009 June30, 2009 Windows Windows Live Division $ 3,638 $ 2,345 Server and Tools 4,424 4,732 Microsoft Business Division 5,920 6,508 Other segments 786 699 Total $ 14,768 $ 14,284

NOTE 14 PRODUCT WARRANTIES

NOTE 14 PRODUCT WARRANTIES
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 14 PRODUCT WARRANTIES	NOTE 14PRODUCT WARRANTIES We provide for the estimated costs of hardware and software warranties at the time the related revenue is recognized. For hardware warranties, we estimate the costs based on historical and projected product failure rates, historical and projected repair costs, and knowledge of specific product failures (if any). The specific hardware warranty terms and conditions vary depending upon the product sold and country in which we do business, but generally include parts and labor over a period generally ranging from 90days to three years. For software warranties, we estimate the costs to provide bug fixes, such as security patches, over the estimated life of the software. We regularly re-evaluate our estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary. Our aggregate product warranty liabilities, which are included in other current liabilities and other long term-liabilities on our balance sheets, changed during the three months ended September30, 2009 as follows: (In millions) Balance, beginning of period $ 342 Accrual for warranties issued 33 Settlements of warranty claims (86 ) Balance, end of period $ 289

NOTE 15 CONTINGENCIES

NOTE 15 CONTINGENCIES
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 15 CONTINGENCIES	NOTE 15CONTINGENCIES Government Competition Law Matters In March2004, the European Commission issued a competition law decision that, among other things, ordered us to license certain Windows server protocol technology to our competitors. In March2007, the European Commission issued a statement of objections claiming that the pricing terms we proposed for licensing the technology as required bythe March 2004 decision were not reasonable. Following additional steps we took to address these concerns, the Commission announced on October22, 2007 that we were in compliance with the March 2004 decision and that no further penalty should accrue after that date. On February27, 2008, the Commission issued a fine of $1.4 billion (899 million) relating to the period prior to October22, 2007. In May 2008, we filed an application with the European Court of First Instance to annul the February2008 fine. We paid the $1.4 billion (899 million) fine in June 2008, pending the outcome of the appeal. In January 2008 the Commission opened a competition law investigation relating to the inclusion of various capabilities in our Windows operating system software, including Web browsing software. The investigation was precipitated by a complaint filed with the Commission by Opera Software ASA, a firm that offers Web browsing software. On January15, 2009, the European Commission issued a statement of objections expressing the Commissions preliminary view that the inclusion of Internet Explorer in Windows since 1996 has violated European competition law. According to the statement of objections, other browsers are foreclosed from competing because Windows includes Internet Explorer. On October7, 2009, the Commission announced its preliminary view that a set of commitments offered by Microsoft would resolve the Commissions competition law concerns. These commitments broadly ensure that computer manufacturers will remain free to install any browser on the PCs they ship and they provide for a Web browser ballot mechanism so that end users throughout Europe are offered a choice of browsers. The Commission stated that it intends to issue a decision making these commitments legally binding, subject to the results of a of a 30-day public comment period. In January 2008 the Commission also opened a competition law investigation that relates primarily to interoperability with respect to our Microsoft Office family of products. This investigation resulted from complaints filed with the Commission by a trade association of Microsofts competitors. Microsoft has made a number of proposals to address the Commissions competition law concerns in this area. The Commission also indicated in its October7, 2009 statement that it may consider the commitments described above to provide a sufficient basis to resolve these competition law concerns. We are subject to a Consent Decree and Final Judgment (Final Judgments) that resolved lawsuits brought by the U.S. Department of Justice, 18 states, and the District of Columbia in two separate actions. The Final Judgments imposed various constraints on our Windows operating system businesses. Originally, the Final Judgments were

NOTE 16 EMPLOYEE SEVERANCE

NOTE 16 EMPLOYEE SEVERANCE
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 16 EMPLOYEE SEVERANCE	NOTE 16EMPLOYEE SEVERANCE In January 2009, we announced and implemented a resource management program to reduce discretionary operating expenses, employee headcount, and capital expenditures. As part of this program, we announced the elimination of up to 5,000 positions in research and development, marketing, sales, finance, legal, human resources, and information technology by June30, 2010. We have now completed this program and reduced our overall number of positions by approximately 5,000 and headcount by approximately 4,600. The balance of the costs are associated with severance packages primarily for international employees that have yet to be paid out due to specific country policies and regulations. The changes in our employee severance liabilities related to the resource management program during the three months ended September30, 2009 were as follows: (In millions) Balance, beginning of period $ 127 Cash payments (85 ) Balance, end of period $ 42

NOTE 17 STOCKHOLDERS' EQUITY

NOTE 17 STOCKHOLDERS' EQUITY
	7/1/2009 - 9/30/2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 17 STOCKHOLDERS' EQUITY	NOTE 17STOCKHOLDERS EQUITY Share Repurchases We repurchased the following shares of common stock during the periods presented: (In millions) ThreeMonthsEnded September30, 2009 2008 Shares of common stock repurchased 58 223 Value of common stock repurchased $ 1,445 $ 5,966 We repurchased all shares with cash resources. As of September30, 2009, approximately $33.1 billion remained of our $40.0 billion repurchase program that we announced on September22, 2008. The repurchase program expires September30, 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 PerShare Dividend Record Date TotalAmount PaymentDate (inmillions) September18, 2009 $ 0.13 November19,2009 $1,157 December10,2009 September19, 2008 $ 0.13 November20,2008 $1,157 December11,2008 The estimate of the amount to be paid as a result of the September18, 2009 declaration was included in other current liabilities as of September30, 2009.

NOTE 18 SEGMENT INFORMATION

NOTE 18 SEGMENT INFORMATION
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 18 SEGMENT INFORMATION	NOTE 18SEGMENT INFORMATION In its operation of the business, management reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with U.S. GAAP. Our five segments are: Windows Windows Live Division; Server and Tools; Online Services Division; Microsoft Business Division; and Entertainment and Devices Division. We have recast certain prior period amounts within this note to conform to the way we internally managed and monitored segment performance during the current period, including moving Windows Live from Online Services Division to Windows Windows Live Division, Mobile Services from Online Services Division to Entertainment and Devices Division, and Razorfish from Online Services Division to Corporate. Segment revenue and operating income (loss) were as follows during the periods presented: (In millions) ThreeMonthsEnded September30, 2009 2008 Revenue Windows Windows Live Division $ 3,981 $ 4,116 Server and Tools 3,437 3,438 Online Services Division 490 510 Microsoft Business Division 4,406 4,918 Entertainment and Devices Division 1,891 1,893 Unallocated and other (1,285 ) 186 Consolidated $ 12,920 $ 15,061 Operating income (loss) Windows Windows Live Division $ 2,811 $ 2,869 Server and Tools 1,244 1,010 Online Services Division (490 ) (332 ) Microsoft Business Division 2,840 3,112 Entertainment and Devices Division 294 134 Reconciling amounts (2,217 ) (794 ) Consolidated $ 4,482 $ 5,999 Because of our integrated business structure, operating costs included in one segment may benefit other segments, and therefore these segments are not designed to measure operating income or loss directly related to the products included in each segment. Inter-segment cost commissions are estimated by management and used to compensate or charge each segment for such shared costs and to incent shared efforts. Management will continually evaluate the alignment of product development organizations, sales organizations, and inter-segment commissions for segment reporting purposes, which may result in changes to segment allocations in future periods. Assets are not allocated to segments for internal reporting presentations. A portion of amortization and depreciation is included with various other costs in an overhead allocation to each segment and it is impracticable for us to separately identify the amount of amortization and depreciation by segment that is included in the measure of segment profit or loss. Reconciling amounts include adjustments to conform with U.S. GAAP and corporate-level activity not specifically attributed to a segment. Significant internal accounting policies that differ from U.S. GAAP relate to revenue recognition, income statement classification, and accelerated depreciation and amortization of stock-based awards. In addition, certain revenue and ex

NOTE 19 SUBSEQUENT EVENT

NOTE 19 SUBSEQUENT EVENT
	3 Months Ended Sep. 30, 2009 USD / shares
Notes to Financial Statements [Abstract]
NOTE 19 SUBSEQUENT EVENT	NOTE 19SUBSEQUENT EVENT On October13, 2009, we closed the sale of Razorfish. This disposal will not materially affect our consolidated results of operations, financial position, or cash flows.

Document Information

Document Information
	3 Months Ended Sep. 30, 2009 USD / shares
Document Information [Text Block]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2009-09-30

Entity Information

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