10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended June 30, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                  to                 

Commission File Number 001-37845

MICROSOFT CORPORATION

WASHINGTON	91-1144442
(STATE OF INCORPORATION)	(I.R.S. ID)

ONE MICROSOFT WAY, REDMOND, WASHINGTON 98052-6399

(425) 882-8080

www.microsoft.com/investor

Securities registered pursuant to Section 12(b) of the Act:

COMMON STOCK, $0.00000625 par value per share                                          NASDAQ

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of December 31, 2017, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $650.1 billion based on the closing sale price as reported on the NASDAQ National Market System. As of July 31, 2018, there were 7,668,217,316 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on November 28, 2018 are incorporated by reference into Part III.

MICROSOFT CORPORATION

FORM 10-K

For the Fiscal Year Ended June 30, 2018

INDEX

			Page
PART I
	Item 1.	Business		3
		Executive Officers of the Registrant		15
	Item 1A.	Risk Factors		17
	Item 1B.	Unresolved Staff Comments		29
	Item 2.	Properties		29
	Item 3.	Legal Proceedings		29
	Item 4.	Mine Safety Disclosures		29
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities		30
	Item 6.	Selected Financial Data		31
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		50
	Item 8.	Financial Statements and Supplementary Data		51
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		98
	Item 9A.	Controls and Procedures		98
		Report of Management on Internal Control over Financial Reporting		98
		Report of Independent Registered Public Accounting Firm		99
	Item 9B.	Other Information		100
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance		100
	Item 11.	Executive Compensation		100
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		100
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		100
	Item 14.	Principal Accounting Fees and Services		100
PART IV
	Item 15.	Exhibits, Financial Statement Schedules		101
	Item 16.	Form 10-K Summary		105
		Signatures		106

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PART I

Item 1

Note About Forward-Looking Statements

This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following sections: “Business” (Part I, Item 1 of this Form 10-K), “Risk Factors” (Part I, Item 1A of this Form 10-K), and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7 of this Form 10-K). These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures about Market Risk” (Part II, Item 7A of this Form 10-K). Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

PART I

ITEM 1. BUSINESS

GENERAL

Embracing Our Future

Microsoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more. We strive to create local opportunity, growth, and impact in every country around the world. Our platforms and tools help drive small business productivity, large business competitiveness, and public-sector efficiency. They also support new startups, improve educational and health outcomes, and empower human ingenuity.

We continue to transform our business to lead in the new era of the intelligent cloud and intelligent edge. We bring technology and products together into experiences and solutions that unlock value for our customers. In this next phase of innovation, computing is more powerful and ubiquitous from the cloud to the edge. Artificial intelligence (“AI”) capabilities are rapidly advancing, fueled by data and knowledge of the world. Physical and virtual worlds are coming together to create richer experiences that understand the context surrounding people, the things they use, the places they go, and their activities and relationships. A person’s experience with technology spans a multitude of devices and has become increasingly more natural and multi-sensory with voice, ink, and gaze interactions.

What We Offer

Founded in 1975, we develop and support software, services, devices, and solutions that deliver new value for customers and help people and businesses realize their full potential.

Our products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; and video games. We also design, manufacture, and sell devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.

We offer an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and we provide solution support and consulting services. We also deliver relevant online advertising to a global audience.

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The Ambitions That Drive Us

To achieve our vision, our research and development efforts focus on three interconnected ambitions:

• Reinvent productivity and business processes.

• Build the intelligent cloud platform.

• Create more personal computing.

Reinvent Productivity and Business Processes

We are in a unique position to empower people and organizations to succeed in a rapidly evolving workplace. Computing experiences are evolving, no longer bound to one device at a time. Instead, experiences are expanding to many devices as people move from home to work to on the go. These modern needs, habits, and expectations of our customers are motivating us to bring Microsoft Office 365, Windows platform, devices, including Microsoft Surface, and third-party applications into a more cohesive Microsoft 365 experience.

Our growth depends on securely delivering continuous innovation and advancing our leading productivity and collaboration tools and services, including Office, Microsoft Dynamics, and LinkedIn. Microsoft 365 brings together Office 365, Windows 10, and Enterprise Mobility + Security to help organizations empower their employees with AI-backed tools that unlock creativity, increase teamwork, and fuel innovation, all the while enabling compliance coverage and data protection. Microsoft Teams is core to our vision for the modern workplace as the digital hub that creates a single canvas for teamwork, conversations, meetings, and content. Microsoft Relationship Sales solution brings together LinkedIn Sales Navigator and Dynamics to transform business to business sales through social selling. Dynamics 365 for Talent with LinkedIn Recruiter and Learning gives human resource professionals a complete solution to compete for talent.

These scenarios represent a move to unlock creativity and inspire teamwork, while simplifying security and management. Organizations of all sizes can now digitize business-critical functions, redefining what customers can expect from their business applications. This creates an opportunity for us to reach new customers and increase usage and engagement with existing customers.

Build the Intelligent Cloud Platform

Companies are looking to use digital technology to fundamentally reimagine how they empower their employees, engage customers, optimize their operations, and change the very core of their products and services. Partnering with organizations on their digital transformation is one of our largest opportunities and we are uniquely positioned to become the strategic digital transformation platform and partner of choice.

Our strategy requires continued investment in datacenters and other infrastructure to support our services. Microsoft Azure is a trusted cloud with comprehensive compliance coverage and AI-based security built in.

Our cloud business benefits from three economies of scale: datacenters that deploy computational resources at significantly lower cost per unit than smaller ones; datacenters that coordinate and aggregate diverse customer, geographic, and application demand patterns, improving the utilization of computing, storage, and network resources; and multi-tenancy locations that lower application maintenance labor costs.

As one of the two largest providers of cloud computing at scale, we believe we work from a position of strength. Being a global, hyper-scale cloud, Azure uniquely offers hybrid consistency, developer productivity, AI capabilities, and trusted security and compliance. Moreover, with Azure Stack, organizations can extend Azure into their own datacenters to create a consistent stack across the public cloud and the intelligent edge. Our hybrid infrastructure consistency spans identity, data, compute, management, and security, helping to support the real-world needs and evolving regulatory requirements of commercial customers and enterprises.

The ability to convert data into AI drives our competitive advantage. Azure SQL Database makes it possible for customers to take Microsoft SQL Server from their on-premises datacenter to a fully managed instance in the cloud to utilize built-in AI. We are accelerating adoption of AI innovations from research to products. Our innovation helps every developer be an AI developer, with approachable new tools from Azure Machine Learning Studio for creating simple machine learning models, to the powerful Azure Machine Learning Workbench for the most advanced AI modeling and data science.

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On June 4, 2018, Microsoft announced plans to acquire GitHub, Inc., a service that millions of developers around the world rely on to write code together. The acquisition is expected to close by the end of the calendar year.

Create More Personal Computing

We strive to make computing more personal by putting users at the core of the experience, enabling them to interact with technology in more intuitive, engaging, and dynamic ways. Windows 10 is the cornerstone of our ambition, providing a foundation for the secure, modern workplace, and designed to foster innovation through rich and consistent experiences across the range of existing devices and entirely new device categories. Windows 10 empowers people with AI-first interfaces ranging from voice-activated commands through Cortana, inking, immersive 3D content storytelling, and mixed reality experiences. Cloud sharing and co-authoring experiences are now natively enabled with OneDrive files on demand. Windows 10 is more accessible for everyone with new features like Eye Control, which gives people the ability to operate a PC using just their eyes.

Our ambition for Windows 10 is to broaden our economic opportunity through three key levers: an original equipment manufacturer (“OEM”) ecosystem that creates exciting new hardware designs for Windows 10; our commitment to our first-party premium device portfolio; and monetization opportunities such as gaming, services, subscriptions, and search advertising.

We are working to create a broad developer opportunity by unifying the Windows installed base on Windows 10 and enabling universal Windows applications to run across devices so developers and OEMs can contribute to a thriving Windows ecosystem. Additionally, we are committed to designing and marketing first-party devices, such as the Surface Laptop, Surface Book 2, and Surface Pro to help drive innovation, create new device categories, and stimulate demand in the Windows ecosystem.

We are mobilizing to pursue our expansive opportunity in the gaming industry, broadening our approach to how we think about gaming end-to-end, from the way games are created and distributed to how they are played and viewed. We have a strong position with our Xbox One console, our large and growing highly engaged community of gamers on Xbox Live, and with Windows 10, the most popular operating system for PC gamers. And we will continue to connect our gaming assets across PC, console, and mobile, and work to grow and engage the Xbox Live member network more deeply and frequently with new services like Mixer and Xbox Game Pass. Our approach is to enable gamers to play the games they want, with the people they want, on the devices they want.

Our Future Opportunity

Customers are looking to us to accelerate their own digital transformations and to unlock new opportunity in this era of intelligent cloud and intelligent edge. We continue to develop complete, intelligent solutions for our customers that empower users to be creative and work together while safeguarding businesses and simplifying IT management. Our goal is to lead the industry in several distinct areas of technology over the long-term, which we expect will translate to sustained growth. We are investing significant resources in:

• Transforming the workplace to deliver new modern, modular business applications to improve how people communicate, collaborate, learn, work, play, and interact with one another.

• Building and running cloud-based services in ways that unleash new experiences and opportunities for businesses and individuals.

• Applying AI to drive insights and act on our customer’s behalf by understanding and interpreting their needs using natural methods of communication.

• Using Windows to develop new categories of devices – both our own and third-party – as a person’s experience with technology becomes more natural, personal, and predictive with multi-sensory breakthroughs in voice, ink, gaze interactions, and augmented reality holograms.

• Inventing new gaming experiences that bring people together around their shared love for games on any devices and pushing the boundaries of innovation with console and PC gaming by creating the next wave of entertainment.

Our future growth depends on our ability to transcend current product category definitions, business models, and sales motions. We have the opportunity to redefine what customers and partners can expect and are working to deliver new solutions that reflect the best of Microsoft.

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OPERATING SEGMENTS

We operate our business and report our financial performance using three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Our segments provide management with a comprehensive financial view of our key businesses. The segments enable the alignment of strategies and objectives across the development, sales, marketing, and services organizations, and they provide a framework for timely and rational allocation of resources within businesses.

Additional information on our operating segments and geographic and product information is contained in Note 21 – Segment Information and Geographic Data of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

Our reportable segments are described below.

Productivity and Business Processes

Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises:

• Office Commercial, including Office 365 subscriptions and Office licensed on-premises, comprising Office, Exchange, SharePoint, Skype for Business, and Microsoft Teams, and related Client Access Licenses (“CALs”).

• Office Consumer, including Office 365 subscriptions and Office licensed on-premises, and Office Consumer Services, including Skype, Outlook.com, and OneDrive.

• LinkedIn, including Talent Solutions, Marketing Solutions, and Premium Subscriptions.

• Dynamics business solutions, including Dynamics ERP on-premises, Dynamics CRM on-premises, and Dynamics 365, a set of cloud-based applications across ERP and CRM.

Office Commercial

Office Commercial is designed to increase personal, team, and organizational productivity through a range of products and services. Growth depends on our ability to reach new usersin new markets such as first-line workers, small and medium businesses, and growth markets, as well as add value to our core product and service offerings to span productivity categories such as communication, collaboration, analytics, and security. Office Commercial revenue is mainly affected by a combination of continued installed base growth and average revenue per user expansion, as well as the continued shift from Office licensed on-premises to Office 365. CALs provide certain Office Commercial products and services with access rights to our server products and CAL revenue is reported with the associated Office products and services.

Office Consumer

Office Consumer is designed to increase personal productivity through a range of products and services. Growth depends on our ability to reach new users, add value to our core product set, and continue to expand our product and service offerings into new markets. Office Consumer revenue is mainly affected by the percentage of customers that buy Office with their new devices and the continued shift from Office licensed on-premises to Office 365. Office Consumer Services revenue is mainly affected by the demand for communication and storage through Skype, Outlook.com, and OneDrive, which is largely driven by subscriptions, advertising, and the sale of minutes.

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LinkedIn

LinkedIn connects the world's professionals to make them more productive and successful, and is the world's largest professional network on the Internet. LinkedIn offers services that can be used by customers to transform the way they hire, market, sell, and learn. In addition to LinkedIn’s free services, LinkedIn offers three categories of monetized solutions: Talent Solutions, Marketing Solutions, and Premium Subscriptions, which includes Sales Solutions. Talent Solutions is comprised of two elements: Hiring, and Learning and Development. Hiring provides services to recruiters that enable them to attract, recruit, and hire talent. Learning and Development provides subscriptions to enterprises and individuals to access online learning content. Marketing Solutions enables companies to advertise to LinkedIn’s member base. Premium Subscriptions enables professionals to manage their professional identity, grow their network, and connect with talent through additional services like premium search. Premium Subscriptions also includes Sales Solutions, which helps sales professionals find, qualify, and create sales opportunities and accelerate social selling capabilities. Growth will depend on our ability to increase the number of LinkedIn members and our ability to continue offering services that provide value for our members and increase their engagement. LinkedIn revenue is mainly affected by demand from enterprises and professional organizations for subscriptions to Talent Solutions and Premium Subscriptions offerings, as well as member engagement and the quality of the sponsored content delivered to those members to drive Marketing Solutions.

Dynamics

Dynamics provides on-premises and cloud-based business solutions for financial management, enterprise resource planning (“ERP”), customer relationship management (“CRM”), supply chain management, and analytics applications for small and medium businesses, large organizations, and divisions of global enterprises. Dynamics revenue is largely driven by the number of users licensed and the continued shift to Dynamics 365, a unified set of cloud-based intelligent business applications.

Competition

Competitors to Office include software and global application vendors, such as Apple, Cisco Systems, Facebook, Google, IBM, and Slack, and numerous web-based and mobile application competitors as well as local application developers. Apple distributes versions of its pre-installed application software, such as email and calendar products, through its PCs, tablets, and phones. Cisco Systems is using its position in enterprise communications equipment to grow its unified communications business. Google provides a hosted messaging and productivity suite. Skype for Business and Skype also compete with a variety of instant messaging, voice, and video communication providers, ranging from start-ups to established enterprises. Web-based offerings competing with individual applications have also positioned themselves as alternatives to our products and services. We compete by providing powerful, flexible, secure, and easy-to-use productivity and collaboration tools and services that create comprehensive solutions and work well with technologies our customers already have both on-premises or in the cloud.

LinkedIn faces competition from online recruiting companies, talent management companies, and larger companies that are focusing on talent management and human resource services; job boards; traditional recruiting firms; and companies that provide learning and development products and services. Marketing Solutions competes with online and offline outlets that generate revenue from advertisers and marketers.

Dynamics competes with vendors such as Infor, Oracle, NetSuite. Salesforce.com, SAP, and The Sage Group to provide on-premise and cloud-based business solutions for small, medium, and large organizations.

Intelligent Cloud

Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business. This segment primarily comprises:

• Server products and cloud services, including SQL Server, Windows Server, Visual Studio, System Center, and related CALs, and Azure.

• Enterprise Services, including Premier Support Services and Microsoft Consulting Services.

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Server Products and Cloud Services

Our server products are designed to make IT professionals, developers, and their systems more productive and efficient. Server software is integrated server infrastructure and middleware designed to support software applications built on the Windows Server operating system. This includes the server platform, database, business intelligence, storage, management and operations, virtualization, service-oriented architecture platform, security, and identity software. We also license standalone and software development lifecycle tools for software architects, developers, testers, and project managers. Server products revenue is mainly affected by purchases through volume licensing programs, licenses sold to OEMs, and retail packaged products. CALs provide access rights to certain server products, including SQL Server and Windows Server, and revenue is reported along with the associated server product.

Azure is a comprehensive set of cloud services that offer developers, IT professionals, and enterprises freedom to build, deploy, and manage applications on any platform or device. Customers can use Azure through our global network of datacenters for basic computing, networking, storage, mobile and web app services, AI, Internet of Things (“IoT”), cognitive services, and machine learning. Azure enables customers to devote more resources to development and use of applications that benefit their organizations, rather than managing on-premises hardware and software. Azure revenue is mainly affected by infrastructure-as-a-service and platform-as-a-service consumption-based services, and per user-based services such as Enterprise Mobility + Security.

Enterprise Services

Enterprise Services, including Premier Support Services and Microsoft Consulting Services, assist customers in developing, deploying, and managing Microsoft server and desktop solutions and provide training and certification to developers and IT professionals on various Microsoft products.

Competition

Our server products face competition from a wide variety of server operating systems and applications offered by companies with a range of market approaches. Vertically integrated computer manufacturers such as Hewlett-Packard, IBM, and Oracle offer their own versions of the Unix operating system preinstalled on server hardware. Nearly all computer manufacturers offer server hardware for the Linux operating system and many contribute to Linux operating system development. The competitive position of Linux has also benefited from the large number of compatible applications now produced by many commercial and non-commercial software developers. A number of companies, such as Red Hat, supply versions of Linux.

We compete to provide enterprise-wide computing solutions and point solutions with numerous commercial software vendors that offer solutions and middleware technology platforms, software applications for connectivity (both Internet and intranet), security, hosting, database, and e-business servers. IBM and Oracle lead a group of companies focused on the Java Platform Enterprise Edition that competes with our enterprise-wide computing solutions. Commercial competitors for our server applications for PC-based distributed client-server environments include CA Technologies, IBM, and Oracle. Our web application platform software competes with open source software such as Apache, Linux, MySQL, and PHP. In middleware, we compete against Java vendors.

Our database, business intelligence, and data warehousing solutions offerings compete with products from IBM, Oracle, SAP, and other companies. Our system management solutions compete with server management and server virtualization platform providers, such as BMC, CA Technologies, Hewlett-Packard, IBM, and VMware. Our products for software developers compete against offerings from Adobe, IBM, Oracle, and other companies, and also against open-source projects, including Eclipse (sponsored by CA Technologies, IBM, Oracle, and SAP), PHP, and Ruby on Rails.

We believe our server products provide customers with advantages in performance, total costs of ownership, and productivity by delivering superior applications, development tools, compatibility with a broad base of hardware and software applications, security, and manageability.

Azure faces diverse competition from companies such as Amazon, Google, IBM, Oracle, Salesforce.com, VMware, and open source offerings. Azure’s competitive advantage includes enabling a hybrid cloud, allowing deployment of existing datacenters with our public cloud into a single, cohesive infrastructure, and the ability to run at a scale that meets the needs of businesses of all sizes and complexities.

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Our Enterprise Services business competes with a wide range of companies that provide strategy and business planning, application development, and infrastructure services, including multinational consulting firms and small niche businesses focused on specific technologies.

More Personal Computing

Our More Personal Computing segment consists of products and services geared towards harmonizing the interests of end users, developers, and IT professionals across all devices. This segment primarily comprises:

• Windows, including Windows OEM licensing (“Windows OEM”) and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; Windows IoT; and MSN advertising.

• Devices, including Surface, PC accessories,and other intelligent devices.

• Gaming, including Xbox hardware and Xbox software and services, comprising Xbox Live transactions, subscriptions, and advertising (“Xbox Live”), video games, and third-party video game royalties.

• Search.

Windows

The Windows operating system is designed to deliver a more personal computing experience for users by enabling consistency of experience, applications, and information across their devices. Windows OEM revenue is impacted significantly by the number of Windows operating system licenses purchased by OEMs, which they pre-install on the devices they sell. In addition to computing device market volume, Windows OEM revenue is impacted by:

• The mix of computing devices based on form factor and screen size.

• Differences in device market demand between developed markets and growth markets.

• Attachment of Windows to devices shipped.

• Customer mix between consumer, small and medium businesses, and large enterprises.

• Changes in inventory levels in the OEM channel.

• Pricing changes and promotions, pricing variation that occurs when the mix of devices manufactured shifts from local and regional system builders to large multinational OEMs, and different pricing of Windows versions licensed.

• Piracy.

Windows Commercial revenue, which includes volume licensing of the Windows operating systemand Windows cloud services such as Windows Defender Advanced Threat Protection, is affected mainly by the demand from commercial customers for volume licensing and Software Assurance (“SA”), as well as advanced security offerings. Windows Commercial revenue often reflects the number of information workers in a licensed enterprise and is relatively independent of the number of PCs sold in a given year.

Patent licensing includes our programs to license patents we own for use across a broad array of technology areas, including mobile devices and cloud offerings.

Windows IoT extends the power of Windows and the cloud to intelligent systems by delivering specialized operating systems, tools, and services for use in embedded devices.

MSN advertising includes both native and display ads.

Devices

We design, manufacture, and sell devices, including Surface, PC accessories, and other intelligent devices, such as Surface Hub and HoloLens. Our devices are designed to enable people and organizations to connect to the people and content that matter most using Windows and integrated Microsoft products and services. Surface is designed to help organizations, students, and consumers be more productive.

In May 2016, we announced plans to streamline our smartphone hardware business. In November 2016, we completed the sale of our feature Phone business.

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Gaming

Our gaming platform is designed to provide a unique variety of entertainment using our devices, peripherals, applications, online services, and content. We released Xbox One S and Xbox One X in August 2016 and November 2017, respectively. With the launch of the Mixer service in May 2017, offering interactive live game streaming, and Xbox Game Pass in June 2017, providing unlimited access to over 100 Xbox titles, we continue to open new opportunities for customers to engage both on- and off-console.

Xbox Live enables people to connect and share online gaming experiences and is accessible on Xbox consoles, Windows-enabled devices, and other devices. Xbox Live is designed to benefit users by providing access to a network of certified applications and services and to benefit our developer and partner ecosystems by providing access to a large customer base. Xbox Live revenue is mainly affected by subscriptions and sales of Xbox Live enabled content, as well as advertising. We also continue to design and sell gaming content to showcase our unique platform capabilities for Xbox consoles, Windows-enabled devices, and other devices. Growth of our Gaming business is determined by the overall active user base through Xbox Live enabled content, availability of games, providing exclusive game content that gamers seek, the computational power and reliability of the devices used to access our content and services, and the ability to create new experiences via online services, downloadable content, and peripherals.

Search

Our Search business, including Bing and Bing Ads, is designed to deliver relevant online advertising to a global audience. We have several partnerships with other companies, including Oath (formerly Yahoo! and AOL) which is owned by Verizon, through which we provide and monetize search queries. Growth depends on our ability to attract new users, understand intent, and match intent with relevant content and advertiser offerings.

Competition

Windows faces competition from various software products and from alternative platforms and devices, mainly from Apple and Google. We believe Windows competes effectively by giving customers choice, value, flexibility, security, an easy-to-use interface, and compatibility with a broad range of hardware and software applications, including those that enable productivity.

Devices face competition from various computer, tablet, and hardware manufacturers who offer a unique combination of high-quality industrial design and innovative technologies across various price points. These manufacturers, many of which are also current or potential partners and customers, include Apple and our Windows OEMs.

Our gaming platform competes with console platforms from Nintendoand Sony, both of which have a large, established base of customers. The lifecycle for gaming and entertainment consoles averages five to ten years. Nintendo released its latest generation console in March 2017 and Sony released its latest generation console in November 2013. We also compete with other providers of entertainment services through online marketplaces. We believe our gaming platform is effectively positioned against competitive products and services based on significant innovation in hardware architecture, user interface, developer tools, online gaming and entertainment services, and continued strong exclusive content from our own game franchises as well as other digital content offerings. Our video games competitors include Electronic Arts and Activision Blizzard. Xbox Live faces competition from various online marketplaces, including those operated by Amazon, Apple, and Google.

Our search business competes with Google and a wide array of websites, social platforms like Facebook, and portals that provide content and online offerings to end users.

OPERATIONS

We have operations centers that support operations in their regions, including customer contract and order processing, credit and collections, information processing, and vendor management and logistics. The regional center in Ireland supports the European, Middle Eastern, and African region; the center in Singapore supports the Japan, India, Greater China, and Asia-Pacific region; and the centers in Fargo, North Dakota, Fort Lauderdale, Florida, Puerto Rico, Redmond, Washington, and Reno, Nevada support Latin America and North America. In addition to the operations centers, we also operate datacenters throughout the Americas, Australia, Europe, and Asia.

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To serve the needs of customers around the world and to improve the quality and usability of products in international markets, we localize many of our products to reflect local languages and conventions. Localizing a product may require modifying the user interface, altering dialog boxes, and translating text.

Our devices are primarily manufactured by third-party contract manufacturers. We generally have the ability to use other manufacturers if a current vendor becomes unavailable or unable to meet our requirements.

RESEARCH AND DEVELOPMENT

During fiscal years 2018, 2017, and 2016, research and development expense was $14.7 billion, $13.0 billion, and $12.0 billion, respectively. These amounts represented 13% of revenue in fiscal years 2018, 2017, and 2016. We plan to continue to make significant investments in a broad range of research and development efforts.

Product and Service Development, and Intellectual Property

We develop most of our products and services internally through the following engineering groups.

• Cloud and AI Platform,focuses on making IT professionals, developers, and their systems more productive and efficient through development of cloud infrastructure, server, database, CRM, ERP, management and development tools, AI cognitive services, and other business process applications and services for enterprises.

• Experiences and Devices, focuses on instilling a unifying product ethos across our end-user experiences and devices, including Office, Windows, Enterprise Mobility and Management, and devices.

• AI and Research, focuses on our AI innovations and other forward-looking research and development efforts spanning infrastructure, services, applications, and search.

• LinkedIn, focuses on our services that transform the way customers hire, market, sell, and learn.

• Gaming, focuses on connecting gaming assets across the range of devices to grow and engage the Xbox Live member network through game experiences, streaming content, and social interaction.

Internal development allows us to maintain competitive advantages that come from product differentiation and closer technical control over our products and services. It also gives us the freedom to decide which modifications and enhancements are most important and when they should be implemented. We strive to obtain information as early as possible about changing usage patterns and hardware advances that may affect software and hardware design. Before releasing new software platforms, and as we make significant modifications to existing platforms, we provide application vendors with a range of resources and guidelines for development, training, and testing. Generally, we also create product documentation internally.

We protect our intellectual property investments in a variety of ways. We work actively in the U.S. and internationally to ensure the enforcement of copyright, trademark, trade secret, and other protections that apply to our software and hardware products, services, business plans, and branding. We are a leader among technology companies in pursuing patents and currently have a portfolio of over 53,000 U.S. and international patents issued and over 29,000 pending. While we employ much of our internally developed intellectual property exclusively in our products and services, we also engage in outbound licensing of specific patented technologies that are incorporated into licensees’ products. From time to time, we enter into broader cross-license agreements with other technology companies covering entire groups of patents. We also purchase or license technology that we incorporate into our products and services. At times, we make select intellectual property broadly available at no or low cost to achieve a strategic objective, such as promoting industry standards, advancing interoperability, or attracting and enabling our external development community. Our increasing engagement with open source software will also cause us to license our intellectual property rights broadly in certain situations.

While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, services, and business methods, we believe, based upon past experience and industry practice, such licenses generally can be obtained on commercially reasonable terms. We believe our continuing research and product development are not materially dependent on any single license or other agreement with a third party relating to the development of our products.

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Investing in the Future

Our success is based on our ability to create new and compelling products, services, and experiences for our users, to initiate and embrace disruptive technology trends, to enter new geographic and product markets, and to drive broad adoption of our products and services. We invest in a range of emerging technology trends and breakthroughs that we believe offer significant opportunities to deliver value to our customers and growth for the company. Based on our assessment of key technology trends, we maintain our long-term commitment to research and development across a wide spectrum of technologies, tools, and platforms spanning digital work and life experiences, cloud computing, AI, devices, and operating systems.

While our main research and development facilities are located in Redmond, Washington, we also operate research and development facilities in other parts of the U.S. and around the world, including Canada, China, India, Ireland, Israel, and the United Kingdom. This global approach helps us remain competitive in local markets and enables us to continue to attract top talent from across the world. We generally fund research at the corporate level to ensure that we are looking beyond immediate product considerations to opportunities further in the future. We also fund research and development activities at the operating segment level. Much of our segment level research and development is coordinated with other segments and leveraged across the company.

In addition to our main research and development operations, we also operate Microsoft Research. Microsoft Research is one of the world’s largest corporate research organizations and works in close collaboration with top universities around the world to advance the state-of-the-art in computer science and a broad range of other disciplines, providing us a unique perspective on future trends and contributing to our innovation.

DISTRIBUTION, SALES, AND MARKETING

We market and distribute our products and services through the following channels: OEMs, direct, and distributors and resellers. Our sales force performs a variety of functions, including working directly with enterprises and public-sector organizations worldwide to identify and meet their technology requirements; managing OEM relationships; and supporting system integrators, independent software vendors, and other partners who engage directly with our customers to perform sales, consulting, and fulfillment functions for our products and services.

OEMs

We distribute our products and services through OEMs that pre-install our software on new devices and servers they sell. The largest component of the OEM business is the Windows operating system pre-installed on devices. OEMs also sell devices pre-installed with other Microsoft products and services, including applications such as Office and the capability to subscribe to Office 365.

There are two broad categories of OEMs. The largest category of OEMs are direct OEMs as our relationship with them is managed through a direct agreement between Microsoft and the OEM. We have distribution agreements covering one or more of our products with virtually all the multinational OEMs, including Acer, ASUS, Dell, Fujitsu, Hewlett-Packard, Lenovo, Samsung, Toshiba, and with many regional and local OEMs. The second broad category of OEMs are system builders consisting of lower-volume PC manufacturers, which source Microsoft software for pre-installation and local redistribution primarily through the Microsoft distributor channel rather than through a direct agreement or relationship with Microsoft.

Direct

Many organizations that license our products and services transact directly with us through Enterprise Agreements and Enterprise Services contracts, with sales support from system integrators, independent software vendors, web agencies, and partners that advise organizations on licensing our products and services (“Enterprise Agreement Software Advisors”, or “ESA”). Microsoft offers direct sales programs targeted to reach small, medium, and corporate customers, in addition to those offered through the reseller channel. A large network of partner advisors support many of these sales.  

We also sell commercial and consumer products and services directly to customers, such as cloud services, search, and gaming, through our digital marketplaces, online stores, and retail stores.

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Distributors and Resellers

Organizations also license our products and services indirectly, primarily through licensing solution partners (“LSP”), distributors, value-added resellers (“VAR”), and retailers. Although each type of reselling partner may reach organizations of all sizes, LSPs are primarily engaged with large organizations, distributors resell primarily to VARs, and VARs typically reach small and medium organizations. ESAs are also typically authorized as LSPs and operate as resellers for our other volume licensing programs. Microsoft Cloud Solution Provider is our main partner program for reselling cloud services.

We distribute our retail packaged products primarily through independent non-exclusive distributors, authorized replicators, resellers, and retail outlets. Individual consumers obtain these products primarily through retail outlets. We distribute our devices through third-party retailers. We have a network of field sales representatives and field support personnel that solicit orders from distributors and resellers, and provide product training and sales support.

Our Dynamics business solutions are also licensed to enterprises through a global network of channel partners providing vertical solutions and specialized services.

LICENSING OPTIONS

We offer options for organizations that want to purchase our cloud services, on-premises software, and Software Assurance. We license software to organizations under volume licensing agreements to allow the customer to acquire multiple licenses of products and services instead of having to acquire separate licenses through retail channels. We use different programs designed to provide flexibility for organizations of various sizes. While these programs may differ in various parts of the world, generally they include those discussed below.

SA conveys rights to new software and upgrades for perpetual licenses released over the contract period. It also provides support, tools, and training to help customers deploy and use software efficiently. SA is included with certain volume licensing agreements and is an optional purchase with others.

Volume Licensing Programs

Enterprise Agreement

Enterprise Agreements offer large organizations a manageable volume licensing program that gives them the flexibility to buy cloud services and software licenses under one agreement. Enterprise Agreements are designed for medium or large organizations that want to license cloud services and on-premises software organization-wide over a three-year period. Organizations can elect to purchase perpetual licenses or subscribe to licenses. SA is included.

Microsoft Product and Services Agreement

Microsoft Product and Services Agreements are designed for medium and large organizations that want to license cloud services and on-premises software as needed, with no organization-wide commitment, under a single, non-expiring agreement. Organizations purchase perpetual licenses or subscribe to licenses. SA is optional for customers that purchase perpetual licenses.

Open

Open agreements are a simple, cost-effective way to acquire the latest Microsoft technology. Open agreements are designed for small and medium organizations that want to license cloud services and on-premises software over a one- to three-year period. Under the Open agreements, organizations purchase perpetual licenses and SA is optional. Under Open Value agreements, organizations can elect to purchase perpetual licenses or subscribe to licenses and SA is included.

Select Plus

Select Plus agreements are designed for government and academic organizations to acquire on-premises licenses at any affiliate or department level, while realizing advantages as one organization. Organizations purchase perpetual licenses and SA is optional.  

In July 2014, we announced the retirement over a two-year period of Select Plus agreements for commercial organizations. Beginning July 2015, no new Select Plus agreements were signed with commercial organizations.

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Microsoft Online Subscription Agreement

Microsoft Online Subscription Agreements are designed for small and medium organizations that want to subscribe to, activate, provision, and maintain cloud services seamlessly and directly via the web. The agreement allows customers to acquire monthly or annual subscriptions for cloud-based services.

Partner Programs

The Microsoft Cloud Solution Provider program offers customers an easy way to license the cloud services they need in combination with the value-added services offered by their systems integrator, hosting partner, or cloud reseller partner. Partners in this program can easily package their own products and services to directly provision, manage, and support their customer subscriptions.

The Microsoft Services Provider License Agreement allows service providers and independent software vendors who want to license eligible Microsoft software products to provide software services and hosted applications to their end customers. Partners license software over a three-year period and are billed monthly based on consumption.

The Independent Software Vendor Royalty program enables partners to integrate Microsoft products into other applications and then license the unified business solution to their end users.

CUSTOMERS

Our customers include individual consumers, small and medium organizations, large global enterprises, public-sector institutions, internet service providers, application developers, and OEMs. No sales to an individual customer accounted for more than 10% of revenue in fiscal years 2018, 2017, or 2016. Our practice is to ship our products promptly upon receipt of purchase orders from customers; consequently, backlog is not significant.

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EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers as of August 3, 2018 were as follows:

Name	Age		Position with the Company
Satya Nadella		50	Chief Executive Officer
Christopher C. Capossela		48	Executive Vice President, Marketing and Consumer Business, and Chief Marketing Officer
Jean-Philippe Courtois		57	Executive Vice President and President, Microsoft Global Sales, Marketing and Operations
Kathleen T. Hogan		52	Executive Vice President, Human Resources
Amy E. Hood		46	Executive Vice President, Chief Financial Officer
Margaret L. Johnson		56	Executive Vice President, Business Development
Bradford L. Smith		59	President and Chief Legal Officer

Mr. Nadella was appointed Chief Executive Officer in February 2014. He served as Executive Vice President, Cloud and Enterprise from July 2013 until that time. From 2011 to 2013, Mr. Nadella served as President, Server and Tools. From 2009 to 2011, he was Senior Vice President, Online Services Division. From 2008 to 2009, he was Senior Vice President, Search, Portal, and Advertising. Since joining Microsoft in 1992, Mr. Nadella’s roles also included Vice President of the Business Division. Mr. Nadella also serves on the Board of Directors of Starbucks Corporation.

Mr. Capossela was appointed Executive Vice President, Marketing and Consumer Business, and Chief Marketing Officer in July 2016. He had served as Executive Vice President, Chief Marketing Officer since March 2014. Previously, he served as the worldwide leader of the Consumer Channels Group, responsible for sales and marketing activities with OEMs, operators, and retail partners. In his more than 25 years at Microsoft, Mr. Capossela has held a variety of marketing leadership roles in the Microsoft Office Division. He was responsible for marketing productivity solutions including Microsoft Office, Office 365, SharePoint, Exchange, Skype for Business, Project, and Visio.

Mr. Courtois was named Executive Vice President and President, Microsoft Global Sales, Marketing and Operations in July 2016. Before that he was President of Microsoft International since 2005. He was Chief Executive Officer, Microsoft Europe, Middle East, and Africa from 2003 to 2005.He was Senior Vice President and President, Microsoft Europe, Middle East, and Africa from 2000 to 2003. He was Corporate Vice President, Worldwide Customer Marketing from 1998 to 2000. Mr. Courtois joined Microsoft in 1984.

Ms. Hogan was appointed Executive Vice President, Human Resources in November 2014. Prior to that Ms. Hogan was Corporate Vice President of Microsoft Services. She also served as Corporate Vice President of Customer Service and Support. Ms. Hogan joined Microsoft in 2003.

Ms. Hood was appointed Executive Vice President and Chief Financial Officer in July 2013, subsequent to her appointment as Chief Financial Officer in May 2013. From 2010 to 2013, Ms. Hood was Chief Financial Officer of the Microsoft Business Division. From 2006 through 2009, Ms. Hood was General Manager, Microsoft Business Division Strategy. Since joining Microsoft in 2002, Ms. Hood has also held finance-related positions in the Server and Tools Business and the corporate finance organization.Ms. Hood also serves on the Board of Directors of 3M Corporation.

Ms. Johnson was appointed Executive Vice President, Business Development in September 2014. Prior to that Ms. Johnson spent 24 years at Qualcomm in various leadership positions across engineering, sales, marketing and business development. She most recently served as Executive Vice President of Qualcomm Technologies, Inc. Ms. Johnson also serves on the Board of Directors of BlackRock, Inc.

Mr. Smith was appointed President and Chief Legal Officer in September 2015. He served as Executive Vice President, General Counsel, and Secretary from 2011 to 2015, and served as Senior Vice President, General Counsel, and Secretary from 2001 to 2011. Mr. Smith was also named Chief Compliance Officer in 2002. Since joining Microsoft in 1993, he was Deputy General Counsel for Worldwide Sales and previously was responsible for managing the European Law and Corporate Affairs Group, based in Paris. Mr. Smith also serves on the Board of Directors of Netflix, Inc.

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EMPLOYEES

As of June 30, 2018, we employed approximately 131,000 people on a full-time basis, 78,000 in the U.S. and 53,000 internationally. Of the total employed people, 42,000 were in operations, including manufacturing, distribution, product support, and consulting services; 42,000 were in product research and development; 36,000 were in sales and marketing; and 11,000 were in general and administration. Certain of our employees are subject to collective bargaining agreements.  

AVAILABLE INFORMATION

Our Internet address is www.microsoft.com. At our Investor Relations website, www.microsoft.com/investor, we make available free of charge a variety of information for investors. Our goal is to maintain the Investor Relations website as a portal through which investors can easily find or navigate to pertinent information about us, including:

• Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the Securities and Exchange Commission (“SEC”).

• Information on our business strategies, financial results, and metrics for investors.

• Announcements of investor conferences, speeches, and events at which our executives talk about our product, service, and competitive strategies. Archives of these events are also available.

• Press releases on quarterly earnings, product and service announcements, legal developments, and international news.

• Corporate governance information including our articles of incorporation, bylaws, governance guidelines, committee charters, codes of conduct and ethics, global corporate social responsibility initiatives, and other governance-related policies.

• Other news and announcements that we may post from time to time that investors might find useful or interesting.

• Opportunities to sign up for email alerts to have information pushed in real time.

The information found on our website is not part of this or any other report we file with, or furnish to, the SEC. In addition to these channels, we use social media to communicate to the public. It is possible that the information we post on social media could be deemed to be material to investors. We encourage investors, the media, and others interested in Microsoft to review the information we post on the social media channels listed on our Investor Relations website.

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ITEM 1A. RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock.

We face intense competition across all markets for our products and services, which may lead to lower revenue or operating margins.

Competition in the technology sector

Our competitors range in size from diversified global companies with significant research and development resources to small, specialized firms whose narrower product lines may let them be more effective in deploying technical, marketing, and financial resources. Barriers to entry in many of our businesses are low and many of the areas in which we compete evolve rapidly with changing and disruptive technologies, shifting user needs, and frequent introductions of new products and services. Our ability to remain competitive depends on our success in making innovative products, devices, and services that appeal to businesses and consumers.

Competition among platform-based ecosystems

An important element of our business model has been to create platform-based ecosystems on which many participants can build diverse solutions. A well-established ecosystem creates beneficial network effects among users, application developers, and the platform provider that can accelerate growth. Establishing significant scale in the marketplace is necessary to achieve and maintain attractive margins. We face significant competition from firms that provide competing platforms.

• A competing vertically-integrated model, in which a single firm controls the software and hardware elements of a product and related services, has succeeded with some consumer products such as personal computers, tablets, phones, gaming consoles, and wearables. Competitors pursuing this model also earn revenue from services integrated with the hardware and software platform, including applications and content sold through their integrated marketplaces. They may also be able to claim security and performance benefits from their vertically integrated offer. We also offer some vertically-integrated hardware and software products and services. To the extent we shift a portion of our business to a vertically integrated model we increase our cost of revenue and reduce our operating margins.

• We derive substantial revenue from licenses of Windows operating systems on personal computers. We face significant competition from competing platforms developed for new devices and form factors such as smartphones and tablet computers. These devices compete on multiple bases including price and the perceived utility of the device and its platform. Users are increasingly turning to these devices to perform functions that in the past were performed by personal computers. Even if many users view these devices as complementary to a personal computer, the prevalence of these devices may make it more difficult to attract application developers to our PC operating system platforms. Competing with operating systems licensed at low or no cost may decrease our PC operating system margins. Popular products or services offered on competing platforms could increase their competitive strength. In addition, some of our devices compete with products made by our original equipment manufacturer (“OEM”) partners, which may affect their commitment to our platform.

• Competing platforms have content and application marketplaces with scale and significant installed bases. The variety and utility of content and applications available on a platform are important to device purchasing decisions. Users sometimes incur costs to move data and buy new content and applications when switching platforms. To compete, we must successfully enlist developers to write applications for our platform and ensure that these applications have high quality, security, customer appeal, and value. Efforts to compete with competitors’ content and application marketplaces may increase our cost of revenue and lower our operating margins.

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Business model competition

Companies compete with us based on a growing variety of business models.

• Even as we transition more of our business to infrastructure-, platform-, and software-as-a-service business model, the license-based proprietary software model generates a substantial portion of our software revenue. We bear the costs of converting original ideas into software products through investments in research and development, offsetting these costs with the revenue received from licensing our products. Many of our competitors also develop and sell software to businesses and consumers under this model.

• Other competitors develop and offer free applications, online services and content, and make money by selling third-party advertising. Advertising revenue funds development of products and services these competitors provide to users at no or little cost, competing directly with our revenue-generating products.

• Some companies compete with us using an open source business model by modifying and then distributing open source software at nominal cost to end-users, and earning revenue on advertising or complementary services and products. These firms do not bear the full costs of research and development for the software. Some open source software vendors develop software that mimics the features and functionality of our products.

The competitive pressures described above may cause decreased sales volumes, price reductions, and/or increased operating costs, such as for research and development, marketing, and sales incentives. This may lead to lower revenue, gross margins, and operating income.

Our increasing focus on cloud-based services presents execution and competitive risks. A growing part of our business involves cloud-based services available across the spectrum of computing devices. Our strategic vision is to compete and grow by building best-in-class platforms and productivity services for an intelligent cloud and an intelligent edge infused with artificial intelligence (“AI”). At the same time, our competitors are rapidly developing and deploying cloud-based services for consumers and business customers. Pricing and delivery models are evolving. Devices and form factors influence how users access services in the cloud and sometimes the user’s choice of which suite of cloud-based services to use. We are devoting significant resources to develop and deploy our cloud-based strategies. The Windows ecosystem must continue to evolve with this changing environment. We are undertaking cultural and organizational changes to drive accountability and eliminate obstacles to innovation. Our intelligent cloud and intelligent edge worldview is connected with the growth of the internet of things (“IoT”). Our success in the IoT will depend on the level of adoption of our offerings such as Microsoft Azure, Azure Stack, Azure IoT Edge, and Azure Sphere. We may not establish market share sufficient to achieve scale necessary to achieve our business objectives.

Besides software development costs, we are incurring costs to build and maintain infrastructure to support cloud computing services. These costs will reduce the operating margins we have previously achieved. Whether we succeed in cloud-based services depends on our execution in several areas, including:

• Continuing to bring to market compelling cloud-based experiences that generate increasing traffic and market share.

• Maintaining the utility, compatibility, and performance of our cloud-based services on the growing array of computing devices, including PCs, smartphones, tablets, gaming consoles, and other devices, as well as sensors and other endpoints.

• Continuing to enhance the attractiveness of our cloud platforms to third-party developers.

• Ensuring our cloud-based services meet the reliability expectations of our customers and maintain the security of their data.

• Making our suite of cloud-based services platform-agnostic, available on a wide range of devices and ecosystems, including those of our competitors.

It is uncertain whether our strategies will attract the users or generate the revenue required to succeed. If we are not effective in executing organizational and technical changes to increase efficiency and accelerate innovation, or if we fail to generate sufficient usage of our new products and services, we may not grow revenue in line with the infrastructure and development investments described above. This may negatively impact gross margins and operating income.

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We make significant investments in new products and services that may not achieve expected returns. We will continue to make significant investments in research, development, and marketing for existing products, services, and technologies, including the Windows operating system, Microsoft 365, Office, Bing, Microsoft SQL Server, Windows Server, the Windows Store, Azure, Office 365, Xbox Live, Mixer, LinkedIn, and other cloud-based offerings. We also invest in the development and acquisition of a variety of hardware for productivity, communication, and entertainment including PCs, tablets, gaming devices, and HoloLens. Investments in new technology are speculative. Commercial success depends on many factors, including innovativeness, developer support, and effective distribution and marketing. If customers do not perceive our latest offerings as providing significant new functionality or other value, they may reduce their purchases of new software and hardware products or upgrades, unfavorably affecting revenue. We may not achieve significant revenue from new product, service, and distribution channel investments for several years, if at all. New products and services may not be profitable, and even if they are profitable, operating margins for some new products and businesses will not be as high as the margins we have experienced historically. We may not get engagement in certain features, like Windows Store, Microsoft Edge, and Bing, that drive post-license monetization opportunities. Our data handling practices across our products and services will continue to be under scrutiny and perceptions of mismanagement, driven by regulatory activity or negative public reaction to our practices or product experiences, which could negatively impact product and feature adoption, product design, and product quality.

Developing new technologies is complex. It can require long development and testing periods. Significant delays in new releases or significant problems in creating new products or services could adversely affect our revenue.

Acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business. We expect to continue making acquisitions and entering into joint ventures and strategic alliances as part of our long-term business strategy. In December 2016, we completed our acquisition of LinkedIn Corporation for $27.0 billion. In June 2018, we announced an agreement to acquire GitHub, Inc. for $7.5 billion. These acquisitions and other transactions and arrangements involve significant challenges and risks, including that they do not advance our business strategy, that we get an unsatisfactory return on our investment, that we have difficulty integrating and retaining new employees, business systems, and technology, or that they distract management from our other businesses. If an arrangement fails to adequately anticipate changing circumstances and interests of a party, it may result in early termination or renegotiation of the arrangement. The success of these transactions and arrangements will depend in part on our ability to leverage them to enhance our existing products and services or develop compelling new ones. It may take longer than expected to realize the full benefits from these transactions and arrangements, such as increased revenue, enhanced efficiencies, or increased market share, or the benefits may ultimately be smaller than we expected. These events could adversely affect our operating results or financial condition.

If our goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings. We acquire other companies and intangible assets and may not realize all the economic benefit from those acquisitions, which could cause an impairment of goodwill or intangibles. We review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. We test goodwill for impairment at least annually. Factors that may be a change in circumstances, indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable, include a decline in our stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in industry segments in which we participate. We have in the past recorded, and may in the future be required to record a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, negatively affecting our results of operations. Our acquisition of LinkedIn resulted in a significant increase in our goodwill and intangible asset balances.

We may not earn the revenues we expect from our intellectual property rights.

We may not be able to adequately protect our intellectual property rights

Protecting our intellectual property rights and combating unlicensed copying and use of our software and other intellectual property on a global basis is difficult. While piracy adversely affects U.S. revenue, the impact on revenue from outside the U.S. is more significant, particularly countries in which the legal system provides less protection for intellectual property rights. Our revenue in these markets may grow more slowly than the underlying device market. Similarly, the absence of harmonized patent laws makes it more difficult to ensure consistent respect for patent rights. Throughout the world, we educate users about the benefits of licensing genuine products and obtaining indemnification benefits for intellectual property risks, and we educate lawmakers about the advantages of a business climate where intellectual property rights are protected. Reductions in the legal protection for software intellectual property rights could adversely affect revenue.

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We may not receive expected royalties from our patent licenses

We expend significant resources to patent the intellectual property we create with the expectation that we will generate revenues by incorporating that intellectual property in our products or services or, in some instances, by licensing our patents to others in return for a royalty. Changes in the law may continue to weaken our ability to prevent the use of patented technology or collect revenue for licensing our patents. These include legislative changes and regulatory actions that make it more difficult to obtain injunctions, and the increasing use of legal process to challenge issued patents. Similarly, licensees of our patents may fail to satisfy their obligations to pay us royalties, or may contest the scope and extent of their obligations. Finally, the royalties we can obtain to monetize our intellectual property may decline because of the evolution of technology, selling price changes in products using licensed patents, or the difficulty of discovering infringements. Finally, our increasing engagement with open source software will also cause us to license our intellectual property rights broadly in certain situations and may negatively impact revenue.

Third parties may claim we infringe their intellectual property rights. From time to time, others claim we infringe their intellectual property rights. The number of these claims may grow because of constant technological change in the markets in which we compete, the extensive patent coverage of existing technologies, the rapid rate of issuance of new patents, and our offering of first-party devices, such as Microsoft Surface. To resolve these claims, we may enter into royalty and licensing agreements on terms that are less favorable than currently available, stop selling or redesign affected products or services, or pay damages to satisfy indemnification commitments with our customers. These outcomes may cause operating margins to decline. Besides money damages, in some jurisdictions plaintiffs can seek injunctive relief that may limit or prevent importing, marketing, and selling our products or services that have infringing technologies. In some countries, such as Germany, an injunction can be issued before the parties have fully litigated the validity of the underlying patents. We have paid significant amounts to settle claims related to the use of technology and intellectual property rights and to procure intellectual property rights as part of our strategy to manage this risk, and may continue to do so.

We may not be able to protect our source code from copying if there is an unauthorized disclosure. Source code, the detailed program commands for our operating systems and other software programs, is critical to our business. Although we license portions of our application and operating system source code to several licensees, we take significant measures to protect the secrecy of large portions of our source code. If our source code leaks, we might lose future trade secret protection for that code. It may then become easier for third parties to compete with our products by copying functionality, which could adversely affect our revenue and operating margins. Unauthorized disclosure of source code also could increase the security risks described in the next paragraph.

Cyberattacks and security vulnerabilities could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position.

Security of our information technology

Threats to IT security can take a variety of forms. Individual and groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states, continuously undertake attacks that pose threats to our customers and our IT. These actors may use a wide variety of methods, which may include developing and deploying malicious software or exploiting vulnerabilities in hardware, software, or other infrastructure in order to attack our products and services or gain access to our networks and datacenters, using social engineering techniques to induce our employees, users, partners, or customers to disclose passwords or other sensitive information or take other actions to gain access to our data or our users’ or customers’ data, or acting in a coordinated manner to launch distributed denial of service or other coordinated attacks. Inadequate account security practices may also result in unauthorized access to confidential data. For example, system administrators may fail to timely remove employee account access when no longer appropriate. Employees or third parties may intentionally compromise our or our users’ security or systems, or reveal confidential information.

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Cyberthreats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. We may have no current capability to detect certain vulnerabilities, which may allow them to persist in the environment over long periods of time. Cyberthreats can have cascading impacts that unfold with increasing speed across our internal networks and systems and those of our partners and customers. Breaches of our facilities, network, or data security could disrupt the security of our systems and business applications, impair our ability to provide services to our customers and protect the privacy of their data, result in product development delays, compromise confidential or technical business information harming our reputation or competitive position, result in theft or misuse of our intellectual property or other assets, require us to allocate more resources to improved technologies, or otherwise adversely affect our business.

In addition, our internal IT environment continues to evolve. Often, we are early adopters of new devices and technologies. We embrace new ways of sharing data and communicating internally and with partners and customers using methods such as social networking and other consumer-oriented technologies. Our business policies and internal security controls may not keep pace with these changes as new threats emerge.

Security of our products, services, devices, and customers’ data

The security of our products and services is important in our customers’ decisions to purchase or use our products or services. Security threats are a significant challenge to companies like us whose business is providing technology products and services to others. Threats to our own IT infrastructure can also affect our customers. Customers using our cloud-based services rely on the security of our infrastructure, including hardware and other elements provided by third parties, to ensure the reliability of our services and the protection of their data. Adversaries tend to focus their efforts on the most popular operating systems, programs, and services, including many of ours, and we expect that to continue. Adversaries that acquire user account information at other companies can use that information to compromise our users’ accounts where accounts share the same attributes like passwords. Inadequate account security practices may also result in unauthorized access. We are also increasingly incorporating open source software into our products. There may be vulnerabilities in open source software that may make our products susceptible to cyberattacks.

To defend against security threats to our internal IT systems, our cloud-based services, and our customers’ systems, we must continuously engineer more secure products and services, enhance security and reliability features, improve the deployment of software updates to address security vulnerabilities in our own products as well as those provided by others, develop mitigation technologies that help to secure customers from attacks even when software updates are not deployed, maintain the digital security infrastructure that protects the integrity of our network, products, and services, and provide customers security tools such as firewalls and anti-virus software and information about the need to deploy security measures and the impact of doing so.

The cost of these steps could reduce our operating margins. If we fail to do these things well, actual or perceived security vulnerabilities in our products and services, data corruption issues, or reduced performance could harm our reputation and lead customers to reduce or delay future purchases of products or subscriptions to services, or to use competing products or services. Customers may also spend more on protecting their existing computer systems from attack, which could delay adoption of additional products or services. Customers may fail to update their systems, continue to run software or operating systems we no longer support, or may fail timely to install or enable security patches. Any of these actions by customers could adversely affect our reputation and revenue. Actual or perceived vulnerabilities may lead to claims against us. Our license agreements typically contain provisions that eliminate or limit our exposure to liability, but there is no assurance these provisions will withstand legal challenges. At times, to achieve commercial objectives, we may enter into agreements with larger liability exposureto customers.

As illustrated by the recent Spectre and Meltdown threats, our products operate in conjunction with and are dependent on products and components across a broad ecosystem. If there is a security vulnerability in one of these components, and if there is a security exploit targeting it, we could face increased costs, liability claims, reduced revenue, or harm to our reputation or competitive position.

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Item 1A

Disclosure and misuse of personal data could result in liability and harm our reputation. As we continue to grow the number and scale of our cloud-based offerings, we store and process increasingly large amounts of personally identifiable information of our customers and users. The continued occurrence of high-profile data breaches provides evidence of an external environment increasingly hostile to information security. Despite our efforts to improve the security controls across our business groups and geographies, it is possible our security controls over personal data, our training of employees and vendors on data security, and other practices we follow may not prevent the improper disclosure of customer or user data we or our vendors store and manage. In addition, third parties who have limited access to our customer or user data may use this data in unauthorized ways. Improper disclosure or misuse could harm our reputation, lead to legal exposure to customers or users, or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. Our software products and services also enable our customers and users to store and process personal data on-premises or, increasingly, in a cloud-based environment we host. Government authorities can sometimes require us to produce customer or user data in response to valid legal orders. In the U.S. and elsewhere, we advocate for transparency concerning these requests and appropriate limitations on government authority to compel disclosure. Despite our efforts to protect customer and user data, perceptions that the collection, use, and retention of personal information is not satisfactorily protected could inhibit sales of our products or services, and could limit adoption of our cloud-based solutions by consumers, businesses, and government entities. Additional security measures we may take to address customer or user concerns, or constraints on our flexibility to determine where and how to operate datacenters in response to customer or user expectations or governmental rules or actions, may cause higher operating expenses or hinder growth of our products and services.

We may not be able to protect information in our products and services from use by others. LinkedIn and other Microsoft products and services contain valuable information and content protected by contractual restrictions or technical measures. In certain cases, we have made commitments to our members and users to limit access to or use of this information. Changes in the law or interpretations of the law may weaken our ability to prevent third parties from scraping or gathering information or content through use of bots or other measures and using it for their own benefit, thus diminishing the value of our products and services.

Abuse of our advertising or social platforms may harm our reputation or user engagement. For LinkedIn, Bing Ads, and other products and services that provide content or host ads that come from or can be influenced by third parties, our reputation or user engagement may be negatively affected by activity that is hostile or inappropriate to other people, by users impersonating other people or organizations, by use of our products or services to disseminate information that may be viewed as misleading or intended to manipulate the opinions of our users, or by the use of our products or services that violates our terms of service or otherwise for objectionable or illegal ends. Preventing these actions may require us to make substantial investments in people and technology and these investments may not be successful, adversely affecting our business and financial results.

We may have excessive outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure. Our increasing user traffic, growth in services, and the complexity of our products and services demand more computing power. We spend substantial amounts to build, purchase, or lease datacenters and equipment and to upgrade our technology and network infrastructure to handle more traffic on our websites and in our datacenters. These demands continue to increase as we introduce new products and services and support the growth of existing services such as Bing, Exchange Online, Azure, Microsoft account services, Office 365, OneDrive, SharePoint Online, Skype, Xbox Live, Outlook.com, and Windows Stores. We are rapidly growing our business of providing a platform and back-end hosting for services provided by third parties to their end users. Maintaining, securing, and expanding this infrastructure is expensive and complex. It requires that we maintain an Internet connectivity infrastructure that is robust and reliable within competitive and regulatory constraints that continue to evolve. Inefficiencies or operational failures, including temporary or permanent loss of customer data or insufficient Internet connectivity, could diminish the quality of our products, services, and user experience resulting in contractual liability, claims by customers and other third parties, regulatory actions, damage to our reputation, and loss of current and potential users, subscribers, and advertisers, each of which may harm our operating results and financial condition.

22

PART I

Item 1A

Government litigation and regulatory activity relating to competition rules may limit how we design and market our products. As a leading global software and device maker, government agencies closely scrutinize us under U.S. and foreign competition laws. An increasing number of governments are actively enforcing competition laws and regulations and this includes increased scrutiny in potentially large markets such as the European Union (“EU”), the U.S., and China. Some jurisdictions also allow competitors or consumers to assert claims of anti-competitive conduct. U.S. federal and state antitrust authorities have previously brought enforcement actions and continue to scrutinize our business.

The European Commission (“the Commission”) closely scrutinizes the design of high-volume Microsoft products and the terms on which we make certain technologies used in these products, such as file formats, programming interfaces, and protocols, available to other companies. Flagship product releases such as Windows 10 can receive significant scrutiny under competition laws. For example, in 2004, the Commission ordered us to create new versions of our Windows operating system that do not include certain multimedia technologies and to provide our competitors with specifications for how to implement certain proprietary Windows communications protocols in their own products. In 2009, the Commission accepted a set of commitments we offered to address the Commission’s concerns relating to competition in web browsing software, including an undertaking to address Commission concerns relating to interoperability. The web browsing commitments expired in 2014. The remaining obligations may limit our ability to innovate in Windows or other products in the future, diminish the developer appeal of the Windows platform, and increase our product development costs. The availability of licenses related to protocols and file formats may enable competitors to develop software products that better mimic the functionality of our products, which could hamper sales of our products.

Our portfolio of first-party devices continues to grow; at the same time our OEM partners offer a large variety of devices on our platforms. As a result, increasingly we both cooperate and compete with our OEM partners, creating a risk that we fail to do so in compliance with competition rules. Regulatory scrutiny in this area may increase. Certain foreign governments, particularly in China and other countries in Asia, have advanced arguments under their competition laws that exert downward pressure on royalties for our intellectual property.

Government regulatory actions and court decisions such as these may result in fines, or hinder our ability to provide the benefits of our software to consumers and businesses, reducing the attractiveness of our products and the revenue that come from them. New competition law actions could be initiated, potentially using previous actions as precedent. The outcome of such actions, or steps taken to avoid them, could adversely affect us in a variety of ways, including:

• We may have to choose between withdrawing products from certain geographies to avoid fines or designing and developing alternative versions of those products to comply with government rulings, which may entail a delay in a product release and removing functionality that customers want or on which developers rely.

• We may be required to make available licenses to our proprietary technologies on terms that do not reflect their fair market value or do not protect our associated intellectual property.

• We are subject to a variety of ongoing commitments because of court or administrative orders, consent decrees, or other voluntary actions we have taken. If we fail to comply with these commitments, we may incur litigation costs and be subject to substantial fines or other remedial actions.

• Our ability to realize anticipated Windows 10 post-sale monetization opportunities may be limited.

23

PART I

Item 1A

Our global operations subject us to potential liability under anti-corruption, trade protection, and other laws and regulations. The Foreign Corrupt Practices Act and other anti-corruption laws and regulations (“Anti-Corruption Laws”) prohibit corrupt payments by our employees, vendors, or agents. From time to time, we receive inquiries from authorities in the U.S. and elsewhere and reports from employees and others about our business activities outside the U.S. and our compliance with Anti-Corruption Laws. Specifically, we have been cooperating with authorities in the U.S. in connection with reports concerning our compliance with the Foreign Corrupt Practices Act in various countries. Most countries in which we operate also have competition laws that prohibit competitors from colluding or otherwise attempting to reduce competition between themselves. While we devote substantial resources to our global compliance programs and have implemented policies, training, and internal controls designed to reduce the risk of corrupt payments and collusive activity, our employees, vendors, or agents may violate our policies. Our failure to comply with Anti-Corruption Laws or competition laws could result in significant fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business, and damage to our reputation. Operations outside the U.S. may be affected by changes in trade protection laws, policies, and measures, sanctions, and other regulatory requirements affecting trade and investment. We may be subject to legal liability and reputational damage if we sell goods or services in violation of U.S. trade sanctions on countries such as Iran, North Korea, Cuba, Sudan, and Syria.

Other regulatory areas that may apply to our products and online services offerings include user privacy, telecommunications, data storage and protection, and online content. For example, regulators may take the position that our offerings such as Skype are covered by existing laws regulating telecommunications services and new laws may define more of our services as regulated telecommunications services. Data protection authorities may assert that our collection, use, and management of customer data is inconsistent with their laws and regulations. Legislative or regulatory action relating cybersecurity requirements may increase the costs to develop, implement, or secure our products and services. Legislative or regulatory action could also emerge in the area of AI, increasing costs or restricting opportunity. Applying these laws and regulations to our business is often unclear, subject to change over time, and sometimes may conflict from jurisdiction to jurisdiction. Additionally, these laws and governments’ approach to their enforcement, and our products and services, are continuing to evolve. Compliance with these types of regulation may involve significant costs or require changes in products or business practices that result in reduced revenue. Noncompliance could result in the imposition of penalties or orders we stop the alleged noncompliant activity.

We strive to empower all people and organizations to achieve more, and accessibility of our products is an important aspect of this goal. There is increasing pressure from advocacy groups, regulators, competitors, and customers to make technology more accessible. If our products do not meet customer expectations or emerging global accessibility requirements, we could lose sales opportunities or face regulatory actions

Laws and regulations relating to the handling of personal data may impede the adoption of our services or result in increased costs, legal claims, fines against us, or reputational damage. The growth of our Internet- and cloud-based services internationally relies increasingly on the movement of data across national boundaries. Legal requirements relating to the collection, storage, handling, and transfer of personal data continue to evolve. For example, the EU and the U.S. formally entered into a new framework in July 2016 that provides a mechanism for companies to transfer data from EU member states to the U.S. This framework, called the Privacy Shield, is intended to address shortcomings identified by the European Court of Justice in a predecessor mechanism. The Privacy Shield and other mechanisms are currently subject to challenges in European courts, which may lead to uncertainty about the legal basis for data transfers across the Atlantic. The Privacy Shield and other potential rules on the flow of data across borders could increase the cost and complexity of delivering our products and services in some markets. In May 2018, a new EU law governing data practices and privacy, the General Data Protection Regulation (“GDPR”), became effective. The law, which applies to all of our activities conducted from an establishment in the EU or related to products and services offered in the EU, imposes a range of new compliance obligations regarding the handling of personal data. Engineering efforts to build new capabilities to facilitate compliance with the law have entailed substantial expense and the diversion of engineering resources from other projects and may continue to do so. We might experience reduced demand for our offerings if we are unable to engineer products that meet our legal duties or help our customers meet their obligations under the GDPR or other data regulations, or if the changes we implement to comply with the GDPR make our offerings less attractive. The GDPR imposes significant new obligations and compliance with these obligations depends in part on how particular regulators apply and interpret them. If we fail to comply with the GDPR, or if regulators assert we have failed to comply with the GDPR, it may lead to regulatory enforcement actions, which can result in monetary penalties of up to 4% of worldwide revenue, private lawsuits, or reputational damage.

24

PART I

Item 1A

The Company’s investment in gaining insights from data is becoming central to the value of the services we deliver to customers, to our operational efficiency and key opportunities in monetization, customer perceptions of quality, and operational efficiency. Our ability to use data in this way may be constrained by regulatory developments that impede realizing the expected return from this investment. Ongoing legal reviews by regulators may result in burdensome or inconsistent requirements, including data sovereignty and localization requirements, affecting the location and movement of our customer and internal employee data as well as the management of that data. Compliance with applicable laws and regulations regarding personal data may require changes in services, business practices, or internal systems that result in increased costs, lower revenue, reduced efficiency, or greater difficulty in competing with foreign-based firms. Compliance with data regulations might limit our ability to innovate or offer certain features and functionality in some jurisdictions where we operate.Failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged noncompliant activity, as well as negative publicity and diversion of management time and effort.

Our business depends on our ability to attract and retain talented employees. Our business is based on successfully attracting and retaining talented employees. The market for highly skilled workers and leaders in our industry is extremely competitive. Maintaining our brand and reputation are important to our ability to recruit and retain employees. We are also limited in our ability to recruit internationally by restrictive domestic immigration laws. Changes to U.S. immigration policies that restrain the flow of technical and professional talent may inhibit our ability to adequately staff our research and development efforts. If we are less successful in our recruiting efforts, or if we cannot retain highly skilled workers and key leaders, our ability to develop and deliver successful products and services may be adversely affected. Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. How employment-related laws are interpreted and applied to our workforce practices may result in increased operating costs and less flexibility in how we meet our workforce needs.

We have claims and lawsuits against us that may result in adverse outcomes. We are subject to a variety of claims and lawsuits. These claims may arise from a wide variety of business practices and initiatives, including major new product releases such as Windows 10, significant business transactions, warranty or product claims, and employment practices. Adverse outcomes in some or all of these claims may result in significant monetary damages or injunctive relief that could adversely affect our ability to conduct our business. The litigation and other claims are subject to inherent uncertainties and management’s view of these matters may change in the future. A material adverse impact in our consolidated financial statements could occur for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable.

We may have additional tax liabilities. We are subject to income taxes in the U.S. and many foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. For example, compliance with the 2017 United States Tax Cut and Jobs Act (“TCJA”) may require the collection of information not regularly produced within the Company, the use of estimates in our financial statements, and the exercise of significant judgment in accounting for its provisions. As regulations and guidance evolve with respect to TCJA, and as we gather more information and perform more analysis, our results may differ from previous estimates and may materially affect our financial position.

We regularly are under audit by tax authorities in different jurisdictions. Economic and political pressures to increase tax revenue in various jurisdictions may make resolving tax disputes favorably more difficult. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation in the jurisdictions where we are subject to taxation could be materially different from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect in our consolidated financial statements in the period or periods in which that determination is made.

We earn a significant amount of our operating income outside the U.S. A change in the mix of earnings and losses in countries with differing statutory tax rates, changes in our business or structure, or the expiration of or disputes about certain tax agreements in a particular country may result in higher effective tax rates for the Company. In addition, changes in U.S. federal and state or international tax laws applicable to corporate multinationals, other fundamental law changes currently being considered by many countries, including in the U.S., and changes in taxing jurisdictions’ administrative interpretations, decisions, policies, and positions may materially adversely impact our tax expense and cash flows.

25

PART I

Item 1A

We may experience quality or supply problems. Our hardware products such as Xbox consoles, Surface devices, and other devices we design, manufacture, and market are highly complex and can have defects in design, manufacture, or associated software. We could incur significant expenses, lost revenue, and reputational harm as a result of recalls, safety alerts, or product liability claims if we fail to prevent, detect, or address such issues through design, testing, or warranty repairs.

Our software products also may experience quality or reliability problems. The highly-sophisticated software products we develop may contain bugs and other defects that interfere with their intended operation. Any defects we do not detect and fix in pre-release testing could cause reduced sales and revenue, damage to our reputation, repair or remediation costs, delays in the release of new products or versions, or legal liability. Although our license agreements typically contain provisions that eliminate or limit our exposure to liability, there is no assurance these provisions will withstand legal challenge.

We acquire some device and datacenter components from sole suppliers. Our competitors use some of the same suppliers and their demand for hardware components can affect the capacity available to us. If a component from a sole-source supplier is delayed or becomes unavailable, whether because of supplier capacity constraint, industry shortages, legal or regulatory changes, or other reasons, we may not obtain timely replacement supplies, resulting in reduced sales or inadequate datacenter capacity. Component shortages, excess or obsolete inventory, or price reductions resulting in inventory adjustments may increase our cost of revenue. Xbox consoles, Surface devices, datacenter servers, and other hardware are assembled in Asia and other geographies that may be subject to disruptions in the supply chain, resulting in shortages that would affect our revenue and operating margins. These same risks would apply to any other hardware and software products we may offer.

Our global business exposes us to operational and economic risks. Our customers are located in over 200 countries and a significant part of our revenue comes from international sales. The global nature of our business creates operational and economic risks. Our results of operations may be affected by global, regional, and local economic developments, monetary policy, inflation, and recession, as well as political and military disputes. In addition, our international growth strategyincludes certain markets, the developing nature of which presents several risks, including deterioration of social, political, labor, or economic conditions in a country or region, and difficulties in staffing and managing foreign operations. Emerging nationalist trends in specific countries may significantly alter the trade environment. Changes to trade policy or agreements as a result of populism, protectionism, or economic nationalism may result in higher tariffs, local sourcing initiatives, or other developments that make it more difficult to sell our products in foreign countries. Disruptions of these kinds in developed or emerging markets could negatively impact demand for our products and services or increase operating costs. Although we hedge a portion of our international currency exposure, significant fluctuations in foreign exchange rates between the U.S. dollar and foreign currencies may adversely affect our revenue.

Catastrophic events or geopolitical conditions may disrupt our business. A disruption or failure of our systems or operations because of a major earthquake, weather event, cyberattack, terrorist attack, or other catastrophic event could cause delays in completing sales, providing services, or performing other critical functions. Our corporate headquarters, a significant portion of our research and development activities, and certain other essential business operations are in the Seattle, Washington area, and we have other business operations in the Silicon Valley area of California, both of which are seismically active regions. A catastrophic event that results in the destruction or disruption of any of our critical business or IT systems could harm our ability to conduct normal business operations. Providing our customers with more services and solutions in the cloud puts a premium on the resilience of our systems and strength of our business continuity management plans, and magnifies the potential impact of prolonged service outages on our operating results.

26

PART I

Item 1A

Abrupt political change, terrorist activity, and armed conflict pose a risk of general economic disruption in affected countries, which may increase our operating costs. These conditions also may add uncertainty to the timing and budget for technology investment decisions by our customers, and may cause supply chain disruptions for hardware manufacturers. Geopolitical change may result in changing regulatory requirements that could impact our operating strategies, access to global markets, hiring, and profitability. Geopolitical instability may lead to sanctions and impact our ability to do business in some markets or with some public-sector customers. Any of these changes may negatively impact our revenues.

The long-term effects of climate change on the global economy or the IT industry in particular are unclear. Environmental regulations or changes in the supply, demand or available sources of energy or other natural resources may affect the availability or cost of goods and services, including natural resources, necessary to run our business. Changes in weather where we operate may increase the costs of powering and cooling computer hardware we use to develop software and provide cloud-based services.

Adverse economic or market conditions may harm our business. Worsening economic conditions, including inflation, recession, or other changes in economic conditions, may cause lower IT spending and adversely affect our revenue. If demand for PCs, servers, and other computing devices declines, or consumer or business spending for those products declines, our revenue will be adversely affected. Substantial revenue comes from our U.S. government contracts. An extended federal government shutdown resulting from failing to pass budget appropriations, adopt continuing funding resolutions or raise the debt ceiling, and other budgetary decisions limiting or delaying federal government spending, could reduce government IT spending on our products and services and adversely affect our revenue.

Our product distribution system relies on an extensive partner and retail network. OEMs building devices that run our software have also been a significant means of distribution. The impact of economic conditions on our partners, such as the bankruptcy of a major distributor, OEM, or retailer, could cause sales channel disruption.

Challenging economic conditions also may impair the ability of our customers to pay for products and services they have purchased. As a result, allowances for doubtful accounts and write-offs of accounts receivable may increase.

We maintain an investment portfolio of various holdings, types, and maturities. These investments are subject to general credit, liquidity, market, and interest rate risks, which may be exacerbated by market downturns or events that affect global financial markets. A significant part of our investment portfolio comprises U.S. government securities. If global financial markets decline for long periods, or if there is a downgrade of the U.S. government credit rating due to an actual or threatened default on government debt, our investment portfolio may be adversely affected and we could determine that more of our investments have experienced an other-than-temporary decline in fair value, requiring impairment charges that could adversely affect our financial results.

Changes in our sales organization may impact revenues. In July 2017, we announced plans to reorganize our global sales organization to help enable customers’ digital transformation, add greater technical ability to our sales force, and create pooled resources that can be used across countries and industries. The reorganization is the most significant change in our global sales organization in our history, involving employees changing roles, adding additional talent, realigning teams, and onboarding new partners. Successfully executing these changes will be a significant factor in enabling future revenue growth. As we continue to navigate through this transition, sales, profitability, and cash flow could be adversely impacted.

The development of the internet of things presents security, privacy, and execution risks. To support the growth of the intelligent cloud and the intelligent edge, we are developing products, services, and technologies to power the IoT, a network of distributed and interconnected devices employing sensors, data, and computing capabilities including AI. The IoT’s great potential also carries substantial risks. IoT products and services may contain defects in design, manufacture, or operation, that make them insecure or ineffective for their intended purposes. An IoT solution has multiple layers of hardware, sensors, processors, software, and firmware, several of which we may not develop or control. Each layer, including the weakest layer, can impact the security of the whole system. Many IoT devices have limited interfaces and ability to be updated or patched. IoT solutions may collect large amounts of data, and our handling of IoT data may not satisfy customers or regulatory requirements. IoT scenarios may increasingly affect personal health and safety. If IoT solutions that include our technologies do not work as intended, violate the law, or harm individuals or businesses, we may be subject to legal claims or enforcement actions. These risks, if realized, may increase our costs, damage our reputation or brands, or negatively impact our revenues or margins.  

27

PART I

Item 1A

Issues in the use of artificial intelligence in our offerings may result in reputational harm or liability. We are building AI into many of our offerings and we expect this element of our business to grow. We envision a future in which AI operating in our devices, applications, and the cloud helps our customers be more productive in their work and personal lives. As with many disruptive innovations, AI presents risks and challenges that could affect its adoption, and therefore our business. AI algorithms may be flawed. Datasets may be insufficient or contain biased information. Inappropriate or controversial data practices by Microsoft or others could impair the acceptance of AI solutions. These deficiencies could undermine the decisions, predictions, or analysis AI applications produce, subjecting us to competitive harm, legal liability, and brand or reputational harm. Some AI scenarios present ethical issues. If we enable or offer AI solutions that are controversial because of their impact on human rights, privacy, employment, or other social issues, we may experience brand or reputational harm.  

If our reputation or our brands are damaged, our business and operating results may be harmed. Our reputation and brands are globally recognized and are important to our business. Our reputation and brands affect our ability to attract and retain consumer, business, and public-sector customers. There are numerous ways our reputation or brands could be damaged. These include product safety or quality issues, or our environmental impact,supply chain practices, or human rights record. We may experience backlash from customers, government entities, advocacy groups, employees, and other stakeholders that disagree with our product offering decisions or public policy positions. Damage to our reputation or our brands may occur from, among other things:

• The introduction of new features, products, services, or terms of service that customers, users, or partners do not like.

• Public scrutiny of our decisions regarding user privacy, data practices, or content.

• Data security breaches, compliance failures, or actions of partners or individual employees.

The proliferation of social media may increase the likelihood, speed, and magnitude of negative brand events. If our brands or reputation are damaged, it could negatively impact our revenues or margins, or ability to attract the most highly qualified employees.

28

PART I

Item 1B, 2, 3, 4

ITEM 1B. UNRESOLVED STAFF COMMENTS

We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of our fiscal year 2018 that remain unresolved.

ITEM 2. PROPERTIES

Our corporate headquarters are located in Redmond, Washington. We have approximately 15 million square feet of space located in King County, Washington that is used for engineering, sales, marketing, and operations, among other general and administrative purposes. These facilities include approximately 10 million square feet of owned space situated on approximately 540 acres of land we own at our corporate headquarters, and approximately five million square feet of space we lease. In addition, we own and lease space domestically that includes office, datacenter, and retail space.

We also own and lease facilities internationally. The largest owned properties include: our research and development centers in China and India; our datacenters in Ireland, Singapore, and the Netherlands; and our operations and facilities in Ireland and the United Kingdom. The largest leased properties include space in the following locations: India, China, France, the United Kingdom, Canada, Australia, Germany, and Japan.

In addition to the above locations, we have various product development facilities, both domestically and internationally, as described under Research and Development (Part I, Item 1 of this Form 10-K).

The table below shows a summary of the square footage of our office, datacenter, retail, and other facilities owned and leased domestically and internationally as of June 30, 2018:

(Square feet in millions)
Location	Owned		Leased		Total
U.S.		18		13		31
International		6		13		19
Total		24		26		50

ITEM 3. LEGAL PROCEEDINGS

While not material to the Company, the Company makes the following annual report of the general activities of the Company’s Antitrust Compliance Office as required by the Final Order and Judgment in Barovic v. Ballmer et al, United States District Court for the Western District of Washington (“Final Order”). For more information see http://aka.ms/MSLegalNotice2015. These annual reports will continue through 2020. During fiscal year 2018, the Antitrust Compliance Office (a) monitored the Company’s compliance with the European Commission Decision of March 24, 2004, (“2004 Decision”) and with the Company’s Public Undertaking to the European Commission dated December 16, 2009 (“2009 Undertaking”); (b) monitored, in the manner required by the Final Order, employee, customer, competitor, regulator, or other third-party complaints regarding compliance with the 2004 Decision, the 2009 Undertaking, or other EU or U.S. laws or regulations governing tying, bundling, and exclusive dealing contracts; and, (c) monitored, in the manner required by the Final Order, the training of the Company’s employees regarding the Company’s antitrust compliance polices. In addition, the Antitrust Compliance Officer reports to the Regulatory and Public Policy Committee of the Board at each of its regularly scheduled meetings and to the full Board annually.

Refer to Note 17 – Contingencies of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for information regarding legal proceedings in which we are involved.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

29

PART II

Item 5

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET AND STOCKHOLDERS

Our common stock is traded on the NASDAQ Stock Market under the symbol MSFT. On July 31, 2018, there were 97,535 registered holders of record of our common stock. The high and low common stock sales prices per share were as follows:

Quarter Ended	September 30		December 31		March 31		June 30		Fiscal Year
Fiscal Year 2018
High	$	75.97	$	87.50	$	97.24	$	102.69	$	102.69
Low		68.02		73.71		83.83		87.51		68.02
Fiscal Year 2017
High	$	58.70	$	64.10	$	66.19	$	72.89	$	72.89
Low		50.39		56.32		61.95		64.85		50.39

DIVIDENDS AND SHARE REPURCHASES

Refer to Note 18 – Stockholders’ Equity of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion regarding dividends and share repurchases. Following are our monthly stock repurchases for the fourth quarter of fiscal year 2018:

Period	Total Number of Shares Purchased		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Programs
	(in millions)
April 1, 2018 – April 30, 2018		10,320,190		$	93.11		10,320,190	$	29,339
May 1, 2018 – May 31, 2018		0			0		0		29,339
June 1, 2018 – June 30, 2018		11,335,224			100.49		11,335,224		28,200
		21,655,414					21,655,414

All repurchases were made using cash resources. Our stock repurchases may occur through open market purchases or pursuant to a Rule 10b5-1 trading plan. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards.

30

PART II

Item 6

ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

(In millions, except per share data)
Year Ended June 30,		2018			2017	(b)(c)		2016	(b)		2015			2014	(h)
Revenue	$	110,360		$	96,571		$	91,154		$	93,580		$	86,833
Gross margin		72,007			62,310			58,374			60,542			59,755
Operating income		35,058			29,025	(d)		26,078	(e)		18,161	(g)		27,759
Net income		16,571	(a)		25,489	(d)		20,539	(e)		12,193	(g)		22,074
Diluted earnings per share		2.13	(a)		3.25	(d)		2.56	(e)		1.48	(g)		2.63
Cash dividends declared per share		1.68			1.56			1.44			1.24			1.12
Cash, cash equivalents, and short-term investments		133,768			132,981			113,240			96,526			85,709
Total assets		258,848			250,312			202,897	(f)		174,303	(f)		170,569	(f)
Long-term obligations		117,642			106,856			66,705	(f)		44,574	(f)		35,285	(f)
Stockholders’ equity		82,718			87,711			83,090			80,083			89,784

(a) Includes a $13.7 billion net charge related to the Tax Cuts and Jobs Act, which decreased net income and diluted earnings per share (“EPS”) by $13.7 billion and $1.75, respectively. Refer to Note 13 – Income Taxes of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

(b) Reflects the impact of the adoption of new accounting standards in fiscal year 2018 related to revenue recognition and leases. Refer to Note 1 – Accounting Policies of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

(c) On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

(d) Includes $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan, which decreased operating income, net income, and diluted EPS by $306 million, $243 million, and $0.04, respectively.   

(e) Includes $630 million of asset impairment charges related to our Phone business, and $480 million of restructuring charges associated with our Phone business restructuring plans, which together decreased operating income, net income, and diluted EPS by $1.1 billion, $895 million, and $0.11, respectively.

(f) Reflects the impact of the adoption of the new accounting standard in fiscal year 2017 related to balance sheet classification of debt issuance costs.

(g) Includes $7.5 billion of goodwill and asset impairment charges related to our Phone business, and $2.5 billion of integration and restructuring expenses, primarily associated with our Phone business restructuring plans, which together decreased operating income, net income, and diluted EPS by $10.0 billion, $9.5 billion, and $1.15, respectively.

(h) On April 25, 2014, we acquired substantially all of Nokia Corporation’s Devices and Services business (“NDS”). NDS has been included in our consolidated results of operations starting on the acquisition date.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Microsoft Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

OVERVIEW

Microsoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more. We strive to create local opportunity, growth, and impact in every country around the world. Our platforms and tools help drive small business productivity, large business competitiveness, and public-sector efficiency. They also support new startups, improve educational and health outcomes, and empower human ingenuity.

We generate revenue by licensing and supporting an array of software products; offering a wide range of cloud-based and other services to people and businesses; designing, manufacturing, and selling devices; and delivering relevant online advertising to a global audience. Our most significant expenses are related to compensating employees; designing, manufacturing, marketing, and selling our products and services; datacenter costs in support of our cloud-based services; and income taxes.

Highlights from fiscal year 2018 compared with fiscal year 2017 included:

• Commercial cloud revenue, which primarily comprises Microsoft Office 365 commercial, Microsoft Azure, Microsoft Dynamics 365, and other cloud properties, increased 56% to $23.2 billion.

• Office Commercial revenue increased 11%, driven by Office 365 commercial revenue growth of 41%.

• Office Consumer revenue increased 11% and Office 365 consumer subscribers increased to 31.4 million.

• LinkedIn contributed revenue of $5.3 billion, driven by strong momentum across all business lines.

• Dynamics revenue increased 13%, driven by Dynamics 365 revenue growth of 65%.

• Server products and cloud services revenue increased 21%, driven by Azure revenue growth of 91%.

• Enterprise Services revenue increased 5%.

• Windows original equipment manufacturer licensing (“Windows OEM”) revenue increased 5%, driven by OEM Pro revenue growth of 11%.

• Windows Commercial revenue increased 12%, driven by an increased volume of multi-year agreements.

• Gaming revenue increased 14%, driven by Xbox software and services revenue growth of 20%, mainly from third-party title strength.

• Microsoft Surface revenue increased 16%, driven by a higher mix of premium devices and an increase in volumes sold, due to the latest editions of Surface.

• Search advertising revenue, excluding traffic acquisition costs, increased 16%, driven by higher revenue per search and search volume.

On June 4, 2018, we entered into a definitive agreement to acquire GitHub, Inc. for $7.5 billion in an all-stock transaction, which is expected to close by the end of the calendar year. On December 8, 2016, we completed our acquisition of LinkedIn Corporation for a total purchase price of $27.0 billion. LinkedIn has been included in our consolidated results of operations since the date of acquisition. Refer to Note 9 – Business Combinations of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect our business. During fiscal year 2018, we recorded a net charge of $13.7 billion related to the TCJA. Refer to Note 13 – Income Taxes of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

We adopted the new accounting standards for revenue recognition and leases effective July 1, 2017. These new standards had a material impact in our consolidated financial statements. Beginning in fiscal year 2018, our financial results reflect adoption of the standards with prior periods restated accordingly. Refer to Note 1 – Accounting Policies of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

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Industry Trends

Our industry is dynamic and highly competitive, with frequent changes in both technologies and business models. Each industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the industry and our business. At Microsoft, we push the boundaries of what is possible through a broad range of research and development activities that seek to identify and address the changing demands of customers and users, industry trends, and competitive forces.

Economic Conditions, Challenges, and Risks

The markets for software, devices, and cloud-based services are dynamic and highly competitive. Our competitors are developing new software and devices, while also deploying competing cloud-based services for consumers and businesses. The devices and form factors customers prefer evolve rapidly, and influence how users access services in the cloud, and in some cases, the user’s choice of which suite of cloud-based services to use. We must continue to evolve and adapt over an extended time in pace with this changing environment. The investments we are making in infrastructure and devices will continue to increase our operating costs and may decrease our operating margins.

Our success is highly dependent on our ability to attract and retain qualified employees. We hire a mix of university and industry talent worldwide. We compete for talented individuals globally by offering an exceptional working environment, broad customer reach, scale in resources, the ability to grow one’s career across many different products and businesses, and competitive compensation and benefits. Aggregate demand for our software, services, and devices is correlated to global macroeconomic and geopolitical factors, which remain dynamic.

Our international operations provide a significant portion of our total revenue and expenses. Many of these revenue and expenses are denominated in currencies other than the U.S. dollar. As a result, changes in foreign exchange rates may significantly affect revenue and expenses. Strengthening of the U.S. dollar relative to certain foreign currencies throughout fiscal year 2017 negatively impacted reported revenue and reduced reported expenses from our international operations. This trend reversed in fiscal year 2018. Strengthening of foreign currencies relative to the U.S. dollar positively impacted reported revenue and increased reported expenses from our international operations.

Refer to Risk Factors (Part I, Item 1A of this Form 10-K) for a discussion of these factors and other risks.

Seasonality

We expect our revenue to fluctuate quarterly and to be higher in the second and fourth quarters of our fiscal year. Second quarter revenue is driven by corporate year-end spending trends in our major markets and holiday season spending by consumers, and fourth quarter revenue is driven by the volume of multi-year on-premises contracts executed during the period.

Reportable Segments

We report our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The segment amounts included in MD&A are presented on a basis consistent with our internal management reporting. All differences between our internal management reporting basis and accounting principles generally accepted in the United States of America (“GAAP”), along with certain corporate-level and other activity, are included in Corporate and Other.

Additional information on our reportable segments is contained in Note 21 – Segment Information and Geographic Data of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

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SUMMARY RESULTS OF OPERATIONS

(In millions, except percentages and per share amounts)	2018		2017		2016		Percentage Change 2018 Versus 2017		Percentage Change 2017 Versus 2016
Revenue	$	110,360	$	96,571	$	91,154		14%		6%
Gross margin		72,007		62,310		58,374		16%		7%
Operating income		35,058		29,025		26,078		21%		11%
Net Income		16,571		25,489		20,539		(35)%		24%
Diluted earnings per share		2.13		3.25		2.56		(34)%		27%
Adjusted operating income		35,058		29,331		27,188		20%		8%
Adjusted net income		30,267		25,732		21,434		18%		20%
Adjusted diluted earnings per share		3.88		3.29		2.67		18%		23%

Consolidated results of operations include LinkedIn results since the date of acquisition on December 8, 2016. Fiscal year 2018 includes a full period of LinkedIn results, whereas fiscal year 2017 only includes results from the date of acquisition.

Adjusted operating income, net income, and adjusted diluted earnings per share (“EPS”) exclude the net charge related to the TCJA, and impairment and restructuring expenses. Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in accordance with GAAP to non-GAAP financial results.

Fiscal Year 2018 Compared with Fiscal Year 2017

Revenue increased $13.8 billion or 14%, driven by growth across each of our segments. Productivity and Business Processes revenue increased, driven by LinkedIn and higher revenue from Office. Intelligent Cloud revenue increased, primarily due to higher revenue from server products and cloud services. More Personal Computing revenue increased, driven by higher revenue from Gaming, Windows, Search advertising, and Surface, offset in part by lower revenue from Phone.

Gross margin increased $9.7 billion or 16%, due to growth across each of our segments. Gross margin percentage increased slightly, driven by favorable segment sales mix and gross margin percentage improvement in More Personal Computing. Gross margin included a 7 percentage point improvement in commercial cloud, primarily from Azure.

Operating income increased $6.0 billion or 21%, driven by growth across each of our segments. LinkedIn operating loss increased $63 million to $987 million, including $1.5 billion of amortization of intangible assets. Operating income included a favorable foreign currency impact of 2%.

Key changes in expenses were:

• Cost of revenue increased $4.1 billion or 12%, mainly due to growth in our commercial cloud, Gaming, LinkedIn, and Search advertising, offset in part by a reduction in Phonecost of revenue.

• Sales and marketing expenses increased $2.0 billion or 13%, primarily due to LinkedIn expenses and investments in commercial sales capacity, offset in part by a decrease in Windows marketing expenses.

• Research and development expenses increased $1.7 billion or 13%, primarily due to investments in cloud engineering and LinkedIn expenses.

• General and administrative expenses increased $273 million or 6%, primarily due to LinkedIn expenses.

Current year net income and diluted EPS were negatively impacted by the net charge related to TCJA, which resulted in a decrease to net income and diluted earnings per share of $13.7 billion and $1.75, respectively. Prior year diluted EPS was negatively impacted by restructuring expenses, which resulted in a decrease in operating income, net income, and diluted EPS of $306 million, $243 million, and $0.04, respectively.

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Fiscal Year 2017 Compared with Fiscal Year 2016

Revenue increased $5.4 billion or 6%, driven by growth in Productivity and Business Processes and Intelligent Cloud, offset in part by lower revenue from More Personal Computing. Productivity and Business Processes revenue increased, driven by the acquisition of LinkedIn and higher revenue from Microsoft Office. Intelligent Cloud revenue increased, primarily due to higher revenue from server products and cloud services. More Personal Computing revenue decreased, mainly due to lower revenue from Devices, offset in part by higher revenue from Windows and Search advertising.

Gross margin increased $3.9 billion or 7%, due to growth across each of our segments, including the acquisition of LinkedIn, driven by higher revenue. Gross margin percentage increased slightly due to a margin percent increase in More Personal Computing and segment sales mix, offset in part by margin percent declines in Productivity and Business Processes and Intelligent Cloud. Gross margin percentage includes a 5 percentage point improvement in commercial cloud gross margin primarily across Azure and Office 365.

Operating income increased $2.9 billion or 11%, primarily due to higher gross margin and lower impairment and restructuring expenses, offset in part by an increase in research and development and sales and marketing expenses. Operating income included an operating loss of $924 million related to the acquisition of LinkedIn, including $866 million of amortization of intangible assets. Operating income also included an unfavorable foreign currency impact of 3%. Key changes in expenses were:

• Cost of revenue increased $1.5 billion or 5%, mainly due to growth in our commercial cloud, the acquisition of LinkedIn, and higher Search advertising traffic acquisition costs, offset in part by a reduction in Phone sales and Gaming cost of revenue.

• Research and development expenses increased $1.0 billion or 9%, primarily due to LinkedIn expenses and increased investments in cloud engineering, offset in part by a reduction in Phone expenses.

• Sales and marketing expenses increased $826 million or 6%, primarily due to LinkedIn expenses and increased investments in sales capacity for our commercial cloud, offset in part by a reduction in Phone and marketing expenses.

• Impairment and restructuring expenses decreased $804 million, driven by asset impairment charges and restructuring charges related to our Phone business in fiscal year 2016, offset in part by employee severance expenses primarily related to our sales and marketing restructuring plan in fiscal year 2017.

Diluted EPS was $3.25 for fiscal year 2017, and was negatively impacted by restructuring expenses, which resulted in a decrease of $0.04. Diluted EPS was $2.56 for fiscal year 2016, and was negatively impacted by impairment and restructuring expenses, which resulted in a decrease of $0.11.

SEGMENT RESULTS OF OPERATIONS

(In millions, except percentages)	2018		2017			2016			Percentage Change 2018 Versus 2017		Percentage Change 2017 Versus 2016
Revenue
Productivity and Business Processes	$	35,865	$	29,870		$	25,792			20%		16%
Intelligent Cloud		32,219		27,407			24,952			18%		10%
More Personal Computing		42,276		39,294			40,410			8%		(3)%
Total	$	110,360	$	96,571		$	91,154			14%		6%
Operating Income (Loss)
Productivity and Business Processes	$	12,924	$	11,389		$	11,756			13%		(3)%
Intelligent Cloud		11,524		9,127			9,249			26%		(1)%
More Personal Computing		10,610		8,815			6,183			20%		43%
Corporate and Other		0		(306	)		(1,110	)		*		*
Total	$	35,058	$	29,025		$	26,078			21%		11%

* Not meaningful

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Reportable Segments

Fiscal Year 2018 Compared with Fiscal Year 2017

Productivity and Business Processes

Revenue increased $6.0 billion or 20%.

• LinkedIn revenue increased $3.0 billion to $5.3 billion. Fiscal year 2018 includes a full period of results, whereas fiscal year 2017 only includes results from the date of acquisition on December 8, 2016. LinkedIn revenue primarily consisted of revenue from Talent Solutions.

• Office Commercial revenue increased $2.4 billion or 11%, driven by Office 365 commercialrevenue growth, mainly due to growth in subscribersand average revenue per user, offset in part by lower revenue from products licensed on-premises, reflecting a continued shift to Office 365 commercial.

• Office Consumer revenue increased $382 million or 11%, driven by Office 365 consumer revenue growth, mainly due to growth in subscribers.

• Dynamics revenue increased 13%, driven by Dynamics 365 revenue growth.

Operating income increased $1.5 billion or 13%, including a favorable foreign currency impact of 2%.

• Gross margin increased $4.4 billion or 19%, driven by LinkedIn and growth in Office commercial. Gross margin percentage decreased slightly, due to an increased mix of cloud offerings, offset in part by gross margin percentage improvement in Office 365 commercial and LinkedIn. LinkedIn cost of revenue increased $818 million to $1.7 billion, including $888 million of amortization for acquired intangible assets.

• Operating expenses increased $2.9 billion or 25%, driven by LinkedIn expenses and investments in commercial sales capacity and cloud engineering. LinkedIn operating expenses increased $2.2 billion to $4.5 billion, including $617 million of amortization of acquired intangible assets.

Intelligent Cloud

Revenue increased $4.8 billion or 18%.

• Server products and cloud services revenue increased $4.5 billion or 21%, driven by Azure and server products licensed on-premises revenue growth. Azure revenue growth of 91%, due tohigher infrastructure-as-a-service and platform-as-a-service consumption-based and per user-based services. Server products licensed on-premises revenue increased 5%, mainly due to a higher mix of premium licenses for Windows Server and Microsoft SQL Server.

• Enterprise Services revenue increased $304 million or 5%, driven by higher revenue from Premier Support Services and Microsoft Consulting Services, offset in part by a decline in revenue from custom support agreements.

Operating income increased $2.4 billion or 26%.

• Gross margin increased $3.1 billion or 16%, driven by growth in server products and cloud services revenue and cloud services scale and efficiencies. Gross margin percentage decreased, due to an increased mix of cloud offerings, offset in part by gross margin percentage improvement in Azure.

• Operating expenses increased $683 million or 7%, driven by investments in commercial sales capacity and cloud engineering.

More Personal Computing

Revenue increased $3.0 billion or 8%.

• Windows revenue increased $925 million or 5%, driven by growth in Windows Commercial and Windows OEM, offset by a decline in patent licensing revenue. Windows Commercial revenue increased 12%, driven by multi-year agreement revenue growth. Windows OEM revenue increased 5%. Windows OEM Pro revenue grew 11%, ahead of a strengthening commercial PC market. Windows OEM non-Pro revenue declined 4%, below the consumer PC market, driven by continued pressure in the entry-level price category.

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• Gaming revenue increased $1.3billion or 14%, driven by Xbox software and services revenue growth of 20%, mainly from third-party title strength.

• Search advertising revenue increased $793 million or 13%. Search advertising revenue, excluding traffic acquisition costs, increased 16%, driven by growth in Bing, due to higher revenue per search and search volume.

• Surface revenue increased $625 million or 16%, driven by a higher mix of premium devices and an increase in volumes sold, due to the latest editions of Surface.

• Phone revenue decreased $525 million.

Operating income increased $1.8 billion or 20%, including a favorable foreign currency impact of 2%.

• Gross margin increased $2.2 billion or 11%, driven by growth in Windows, Surface, Search, and Gaming. Gross margin percentage increased, primarily due to gross margin percentage improvement in Surface.

• Operating expenses increased $391 million or 3%, driven by investments in Search, artificial intelligence, and Gaming engineering and commercial sales capacity, offset in part by a decrease in Windows marketing expenses.

Fiscal Year 2017 Compared with Fiscal Year 2016

Productivity and Business Processes

Revenue increased $4.1 billion or 16%.

• LinkedIn revenue was $2.3 billion, primarily comprised of revenue from Talent Solutions.

• Office Commercial revenue increased $1.4 billion or 7%, driven by higher revenue from Office 365 commercial, mainly due to growth in subscribers, offset in part by lower revenue from products licensed on-premises, reflecting a continued shift to Office 365 commercial.

• Office Consumer revenue increased $351 million or 11%, driven by higher revenue from Office 365 consumer, mainly due to growth in subscribers.

• Dynamics revenue increased 5%, primarily due to higher revenue from Dynamics 365.

Operating income decreased $367 million or 3%, including an unfavorable foreign currency impact of 2%.

• Operating expenses increased $2.3 billion or 26%, mainly due to LinkedIn and cloud engineering expenses. Operating expenses included $2.3 billion related to our acquisition of LinkedIn, including $359 million of amortization of acquired intangible assets. Sales and marketing expenses increased $1.2 billion or 24%, research and development expenses increased $955 million or 35%, and general and administrative expenses increased $212 million or 14%.

• Gross margin increased $2.0 billion or 9%, primarily due to our acquisition of LinkedIn. Gross margin percentage decreased, due to an increased mix of cloud offerings and amortization of acquired intangible assets related to LinkedIn. Cost of revenue included $918 million related to our acquisition of LinkedIn, including $507 million of amortization of acquired intangible assets.

Intelligent Cloud

Revenue increased $2.5 billion or 10%.

• Server products and cloud services revenue grew $2.6 billion or 14%, driven by Azure revenue growth of 98% and server products licensed on-premises revenue growth of 5%.

• Enterprise Services revenue decreased 2%, driven by a decline in revenue from custom support agreements, offset in part by higher revenue from Premier Support Services and Microsoft Consulting Services.

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Operating income decreased $122 million or 1%, including an unfavorable foreign currency impact of 2%.

• Operating expenses increased $975 million or 11%, driven by investments in sales capacity, cloud engineering, and developer engagement. Sales and marketing expenses increased $549 million or 13%, research and development expenses increased $468 million or 14%, and general and administrative expenses decreased $42 million or 3%.

• Gross margin increased $853 million or 5%, driven by growth in server products and cloud services revenue and cloud services scale and efficiencies, offset in part by a decline in Enterprise Services gross margin. Gross margin percentage decreased, due to an increased mix of cloud offerings and lower Enterprise Services gross margin percent, offset by improvement in Azure gross margin percent.

More Personal Computing

Revenue decreased $1.1 billion or 3%.

• Windows revenue increased $1.0 billion or 6%, mainly due to higher revenue from Windows Commercial and Windows OEM. Windows Commercial revenue grew 14%, driven by multi-year agreement revenue.Windows OEM revenue increased 3%. Windows OEM Pro revenue grew 4%, outperforming the commercial PC market, primarily due to a higher mix of premium licenses sold. Windows OEM non-Pro revenue grew 3%, outperforming the consumer PC market, primarily due to a higher mix of premium devices sold.

• Search advertising revenue increased $791 million or 15%. Search advertising revenue, excluding traffic acquisition costs, increased 9%, primarily driven by growth in Bing, due to higher revenue per search and search volume.

• Gaming revenue decreased slightly, primarily due to lower Xbox hardware revenue, offset in part by higher revenue from Xbox software and services. Xbox hardware revenue decreased 21%, mainly due to lower prices of consoles sold and a decline in volume of consoles sold. Xbox software and services revenue increased 11%, driven by a higher volume of Xbox Live transactions and revenue per transaction.

• Surface revenue decreased $82 million or 2%, primarily due to a reduction in volumes sold, offset in part by a higher mix of premium devices.

• Phone revenue decreased $2.8 billion.

Operating income increased $2.6 billion or 43%, including an unfavorable foreign currency impact of 3%.

• Operating expenses decreased $1.5 billion or 12%, driven by a reduction in Phone expenses and Surface launch-related expenses in the prior year. Sales and marketing expenses decreased $893 million or 16%, research and development expenses decreased $374 million or 6%, and general and administrative expenses decreased $252 million or 16%.

• Gross margin increased $1.1 billion or 6%, driven by growth in Windows, Search advertising, and Gaming, offset in part by a decline in Phone and Surface. Gross margin percentage increased, due to favorable sales mix and gross margin percent improvements across Windows, Gaming, and Search advertising, offset by a gross margin percent decline in Devices.

Corporate and Other

Corporate and Other operating loss is comprised of corporate-level activity not specifically allocated to a segment, including impairment and restructuring expenses.

Fiscal Year 2018 Compared with Fiscal Year 2017

Corporate and Other operating loss decreased $306 million, due to a reduction in impairment and restructuring expenses, driven by employee severance expenses primarily related to our sales and marketing restructuring plan in fiscal year 2017.

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Fiscal Year 2017 Compared with Fiscal Year 2016

Corporate and Other operating loss decreased $804 million, primarily due to a reduction in impairment and restructuring expenses, driven by asset impairment charges and restructuring charges related to our Phone business in fiscal year 2016, offset in part byemployee severance expenses primarily related to our sales and marketing restructuring plan in fiscal year 2017.

OPERATING EXPENSES

Research and Development

(In millions, except percentages)	2018		2017		2016		Percentage Change 2018 Versus 2017		Percentage Change 2017 Versus 2016
Research and development	$	14,726	$	13,037	$	11,988		13%		9%
As a percent of revenue		13%		13%		13%		0ppt		0ppt

Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, localization costs incurred to translate software for international markets, and the amortization of purchased software code and services content.

Fiscal Year 2018 Compared with Fiscal Year 2017

Research and development expenses increased $1.7 billion or 13%, primarily due to investments in cloud engineering and LinkedIn expenses. LinkedIn expenses increased $762 million to $1.5 billion.

Fiscal Year 2017 Compared with Fiscal Year 2016

Research and development expenses increased $1.0 billion or 9%, primarily due to LinkedIn expenses and increased investments in cloud engineering, offset in part by a reduction in Phone expenses. Expenses included $745 million related to our acquisition of LinkedIn.

Sales and Marketing

(In millions, except percentages)	2018		2017		2016		Percentage Change 2018 Versus 2017		Percentage Change 2017 Versus 2016
Sales and marketing	$	17,469	$	15,461	$	14,635		13%		6%
As a percent of revenue		16%		16%		16%		0ppt		0ppt

Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs.

Fiscal Year 2018 Compared with Fiscal Year 2017

Sales and marketing expenses increased $2.0 billion or 13%, primarily due to LinkedIn expenses and investments in commercial sales capacity, offset in part by a decrease in Windows marketing expenses. LinkedIn expenses increased $1.2 billion to $2.5 billion, including $617 million of amortization of acquired intangible assets.

Fiscal Year 2017 Compared with Fiscal Year 2016

Sales and marketing expenses increased $826 million or 6%, primarily due to LinkedIn expenses and increased investments in sales capacity for our commercial cloud, offset in part by a reduction in Phone expenses and prior year marketing expenses primarily related to Surface, commercial, and Windows 10. Expenses included $1.2 billion related to our acquisition of LinkedIn, including $359 million of amortization of acquired intangible assets.

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General and Administrative

(In millions, except percentages)	2018		2017		2016		Percentage Change 2018 Versus 2017		Percentage Change 2017 Versus 2016
General and administrative	$	4,754	$	4,481	$	4,563		6%		(2)%
As a percent of revenue		4%		5%		5%		(1)ppt		0ppt

General and administrative expenses include payroll, employee benefits, stock-based compensation expense, severance expense, and other headcount-related expenses associated with finance, legal, facilities, certain human resources and other administrative personnel, certain taxes, and legal and other administrative fees.

Fiscal Year 2018 Compared with Fiscal Year 2017

General and administrative expenses increased $273 million or 6%, primarily due to LinkedIn expenses. LinkedIn expenses increased $234 million to $528 million.

Fiscal Year 2017 Compared with Fiscal Year 2016

General and administrative expenses decreased $82 million or 2%, primarily due to prior year investments in infrastructure supporting our business transformation, a reduction in Phone expenses, and lower employee-related expenses, offset in part by LinkedIn expenses. Expenses included $294 million related to our acquisition of LinkedIn.

IMPAIRMENT AND RESTRUCTURING EXPENSES

Impairment and restructuring expenses include costs associated with the impairment of intangible assets related to our Phone business, and employee severance expenses and other costs associated with the consolidation of facilities and manufacturing operations related to restructuring activities.

Fiscal Year 2018 Compared with Fiscal Year 2017

During fiscal year 2017, we recorded $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan.

Fiscal Year 2017 Compared with Fiscal Year 2016

Impairment and restructuring expenses were $306 million for fiscal year 2017, compared to $1.1 billion for fiscal year 2016.

During fiscal year 2016, we recorded $630 million of asset impairment charges related to our Phone business. We also recorded $480 million of restructuring charges, including employee severance expenses and contract termination costs, primarily related to our previously announced Phone business restructuring plans.

OTHER INCOME (EXPENSE), NET

The components of other income (expense), net were as follows:

(In millions)
Year Ended June 30,		2018			2017			2016
Dividends and interest income	$	2,214		$	1,387		$	903
Interest expense		(2,733	)		(2,222	)		(1,243	)
Net recognized gains on investments		2,399			2,583			668
Net losses on derivatives		(187	)		(510	)		(443	)
Net losses on foreign currency remeasurements		(218	)		(111	)		(129	)
Other, net		(59	)		(251	)		(195	)
Total	$	1,416		$	876		$	(439	)

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We use derivative instruments to: manage risks related to foreign currencies, equity prices, interest rates, and credit; enhance investment returns; and facilitate portfolio diversification. Gains and losses from changes in fair values of derivatives that are not designated as hedges are primarily recognized in other income (expense), net.

Fiscal Year 2018 Compared with Fiscal Year 2017

Dividends and interest income increased primarily due to higher average portfolio balances and yields on fixed-income securities. Interest expense increased primarily due to higher average outstanding long-term debt and higher finance lease expense. Net recognized gains on investments decreased primarily due to higher losses on sales of fixed-income securities, offset in part by higher gains on sales of equity securities. Net losses on derivatives decreased primarily due to lower losses on equity, foreign exchange, and commodity derivatives, offset in part by losses on interest rate derivatives in the current period as compared to gains in the prior period.

Fiscal Year 2017 Compared with Fiscal Year 2016

Dividends and interest income increased primarily due to higher portfolio balances and yields on fixed-income securities. Interest expense increased primarily due to higher outstanding long-term debt. Net recognized gains on investments increased primarily due to higher gains on sales of equity securities. Net losses on derivatives increased due to higher losses on equity derivatives, offset in part by lower losses on commodity and foreign currency derivatives. Other, net reflects recognized losses from certain joint ventures and divestitures.

INCOME TAXES

Effective Tax Rate

Fiscal Year 2018 Compared with Fiscal Year 2017

Our effective tax rate for fiscal years 2018 and 2017 was 55% and 15%, respectively. The increase in our effective tax rate for fiscal year 2018 compared to fiscal year 2017 was primarily due to the net charge related to the enactment of the TCJA in fiscal year 2018 and the realization of tax benefits attributable to previous Phone business losses in fiscal year 2017. Our effective tax rate was higher than the U.S. federal statutory rate primarily due to the net charge related to the enactment of the TCJA, offset in part by earnings taxed at lower rates in foreign jurisdictions resulting from our foreign regional operations centers in Ireland, Singapore, and Puerto Rico.

The mix of income before income taxes between the U.S. and foreign countries impacted our effective tax rate as a result of the geographic distribution of, and customer demand for, our products and services. In fiscal year 2018, our U.S. income before income taxes was $11.5 billion and our foreign income before income taxes was $24.9 billion. In fiscal year 2017, our U.S. income before income taxes was $6.8 billion and our foreign income before income taxes was $23.1 billion.

Fiscal Year 2017 Compared with Fiscal Year 2016

Our effective tax rate for fiscal years 2017 and 2016 was 15% and 20%, respectively. The decrease in our effective tax rate for fiscal year 2017 compared to fiscal year 2016 was primarily due to the realization of tax benefits attributable to previous Phone business losses, offset in part by changes in the mix of our income before income taxes between the U.S. and foreign countries. Our effective tax rate was lower than the U.S. federal statutory rate primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from our foreign regional operations centers in Ireland, Singapore, and Puerto Rico.

The mix of income before income taxes between the U.S. and foreign countries impacted our effective tax rate as a result of the geographic distribution of, and customer demand for, our products and services. In fiscal year 2017, our U.S. income before income taxes was $6.8 billion and our foreign income before income taxes was $23.1 billion. In fiscal year 2016, our U.S. income before income taxes was $5.1 billion and our foreign income before income taxes was $20.5 billion.

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Recent Tax Legislation

On December 22, 2017, the TCJA was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect our business, such as imposing a one-time transition tax on deemed repatriation of deferred foreign income, reducing the U.S. federal statutory tax rate, and adopting a territorial tax system. The TCJA required us to incur a one-time transition tax on deferred foreign income not previously subject to U.S. income tax at a rate of 15.5% for foreign cash and certain other net current assets, and 8% on the remaining income. The TCJA also reduced the U.S. federal statutory tax rate from 35% to 21% effective January 1, 2018. For fiscal year 2018, our blended U.S. federal statutory tax rate is 28.1%. This is the result of using the tax rate of 35% for the first and second quarter of fiscal year 2018 and the reduced tax rate of 21% for the third and fourth quarter of fiscal year 2018. The TCJA includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a base erosion anti-abuse tax (“BEAT”) measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. The GILTI and BEAT provisions of the TCJA will be effective for us beginning July 1, 2018.

The TCJA was effective in the second quarter of fiscal year 2018. As of June 30, 2018, we have not completed our accounting for the estimated tax effects of the TCJA. During fiscal year 2018, we recorded a provisional net charge of $13.7 billion related to the TCJA based on reasonable estimates for those tax effects. Due to the timing of the enactment and the complexity in applying the provisions of the TCJA, the provisional net charge is subject to revisions as we continue to complete our analysis of the TCJA, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service (“IRS”), Financial Accounting Standards Board, and other standard-setting and regulatory bodies. Adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. Our accounting for the estimated tax effects of the TCJA will be completed during the measurement period, which is not expected to extend beyond one year from the enactment date.

During fiscal year 2018, we recorded an estimated net charge of $13.7 billion related to the TCJA, due to the impact of the one-time transition tax on the deemed repatriation of deferred foreign income of $17.9 billion, offset in part by the impact of changes in the tax rate of $4.2 billion, primarily on deferred tax assets and liabilities.

Uncertain Tax Positions

While we settled a portion of the IRS audit for tax years 2004 to 2006 during the third quarter of fiscal year 2011, and a portion of the IRS audit for tax years 2007 to 2009 during the first quarter of fiscal year 2016, we remain under audit for those years. In the second quarter of fiscal year 2018, we settled a portion of the IRS audit for tax years 2010 to 2013. We continue to be subject to examination by the IRS for tax years 2010 to 2017. In February 2012, the IRS withdrew its 2011 Revenue Agents Report for tax years 2004 to 2006 and reopened the audit phase of the examination. As of June 30, 2018, the primary unresolved issue relates to transfer pricing, which could have a significant impact in our consolidated financial statements if not resolved favorably. We believe our allowances for income tax contingencies are adequate. We have not received a proposed assessment for the unresolved issues and do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months.

We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years 1996 to 2017, some of which are currently under audit by local tax authorities. The resolution of each of these audits is not expected to be material to our consolidated financial statements.

NON-GAAP FINANCIAL MEASURES

Adjusted operating income, net income and diluted earnings per share are non-GAAP financial measures which exclude the net charge related to the TCJA, and impairment and restructuring expenses. We believe these non-GAAP measures aid investors by providing additional insight into our operational performance and help clarify trends affecting our business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. These non-GAAP financial measures presented should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

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The following table reconciles our financial results reported in accordance with GAAP to non-GAAP financial results:

(In millions, except percentagesand per share amounts)	2018		2017		2016		Percentage Change 2018 Versus 2017		Percentage Change 2017 Versus 2016
Operating income	$	35,058	$	29,025	$	26,078		21%		11%
Net charge related to the TCJA		0		0		0
Impairment and restructuring expenses		0		306		1,110
Adjusted operating income	$	35,058	$	29,331	$	27,188		20%		8%
Net income	$	16,571	$	25,489	$	20,539		(35)%		24%
Net charge related to the TCJA		13,696		0		0
Impairment and restructuring expenses		0		243		895
Adjusted net income	$	30,267	$	25,732	$	21,434		18%		20%
Diluted earnings per share	$	2.13	$	3.25	$	2.56		(34)%		27%
Net charge related to the TCJA		1.75		0		0
Impairment and restructuring expenses		0		0.04		0.11
Adjusted diluted earnings per share	$	3.88	$	3.29	$	2.67		18%		23%

FINANCIAL CONDITION

Cash, Cash Equivalents, and Investments

Cash, cash equivalents, and short-term investments totaled $133.8 billion and $133.0 billion as of June 30, 2018 and 2017, respectively. Equity and other investments were $1.9 billion and $6.0 billion as of June 30, 2018 and 2017, respectively. Our short-term investments are primarily intended to facilitate liquidity and capital preservation. They consist predominantly of highly liquid investment-grade fixed-income securities, diversified among industries and individual issuers. The investments are predominantly U.S. dollar-denominated securities, but also include foreign currency-denominated securities to diversify risk. Our fixed-income investments are exposed to interest rate risk and credit risk. The credit risk and average maturity of our fixed-income portfolio are managed to achieve economic returns that correlate to certain fixed-income indices. The settlement risk related to these investments is insignificant given that the short-term investments held are primarily highly liquid investment-grade fixed-income securities.

As a result of the TCJA, our cash, cash equivalents, and short-term investments held by foreign subsidiaries are no longer subject to U.S. tax on repatriation into the U.S.

Valuation

In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine the fair value of our financial instruments. This pricing methodology applies to our Level 1 investments, such as U.S. government securities, common and preferred stock, and mutual funds. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly. This pricing methodology applies to our Level 2 investments such as corporate notes and bonds, foreign government bonds, mortgage- and asset-backed securities, commercial paper, certificates of deposit, and U.S. agency securities. Level 3 investments are valued using internally developed models with unobservable inputs. Assets and liabilities measured at fair value on a recurring basis using unobservable inputs are an immaterial portion of our portfolio.

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A majority of our investments are priced by pricing vendors and are generally Level 1 or Level 2 investments as these vendors either provide a quoted market price in an active market or use observable inputs for their pricing without applying significant adjustments. Broker pricing is used mainly when a quoted price is not available, the investment is not priced by our pricing vendors, or when a broker price is more reflective of fair values in the market in which the investment trades. Our broker-priced investments are generally classified as Level 2 investments because the broker prices these investments based on similar assets without applying significant adjustments. In addition, all our broker-priced investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriate for these investments. Our fair value processes include controls that are designed to ensure appropriate fair values are recorded. These controls include model validation, review of key model inputs, analysis of period-over-period fluctuations, and independent recalculation of prices where appropriate.

Cash Flows

Fiscal Year 2018 Compared with Fiscal Year 2017

Cash from operations increased $4.4 billion to $43.9 billion for the fiscal year ended June 30, 2018, mainly due to an increase in cash received from customers, offset in part by an increase in cash paid to employees, net cash paid for income taxes, cash paid for interest on debt, and cash paid to suppliers. Cash used in financing was $33.6 billion for the fiscal year ended June 30, 2018, compared to cash from financing of $8.4 billion for the fiscal year ended June 30, 2017. The change was mainly due to a $41.7 billion decrease in proceeds from issuance of debt, net of repayments, offset in part by a $1.1 billion decrease in cash used for common stock repurchases. Cash used in investing decreased $40.7 billion to $6.1 billion for the fiscal year ended June 30, 2018, mainly due to a $25.1 billion decrease in cash used for acquisitions of companies, net of cash acquired, and purchases of intangible and other assets, and a $19.1 billion increase in cash from net investment purchases, sales, and maturities.

Fiscal Year 2017 Compared with Fiscal Year 2016

Cash from operations increased $6.2 billion to $39.5 billion during the fiscal year, mainly due to an increase in cash received from customers and an income tax refund for overpayment of estimated taxes, offset in part by an increase in cash paid to employees. Cash from financing increased $16.8 billion to $8.4 billion, mainly due to a $13.2 billion increase in proceeds from issuances of debt, net of repayments, and a $4.2 billion decrease in cash used for common stock repurchases, offset in part by an $839 million increase in dividends paid. Cash used in investing increased $22.8 billion to $46.8 billion, mainly due to a $24.6 billion increase in cash used for acquisitions of companies, net of cash acquired, and purchases of intangibles and other assets, offset in part by a $1.9 billion decrease in cash used for net investment purchases, sales, and maturities.  

Debt

We issued debt to take advantage of favorable pricing and liquidity in the debt markets, reflecting our credit rating and the low interest rate environment. The proceeds of these issuances were or will be used for general corporate purposes, which may include, among other things, funding for working capital, capital expenditures, repurchases of capital stock, acquisitions, and repayment of existing debt. Refer to Note 12 – Debt of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K)for further discussion.

Unearned Revenue

Unearned revenue comprises mainly unearned revenue related to volume licensing programs and includes Software Assurance (“SA”) and cloud services. Unearned revenue is generally billed upfront at the beginning of each annual coverage period for multi-year agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service. Refer to Note 1 – Accounting Policies of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

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The following table outlines the expected future recognition of unearned revenue as of June 30, 2018:

(In millions)
Three Months Ending,
September 30, 2018	$	11,081
December 31, 2018		8,688
March 31, 2019		5,995
June 30, 2019		3,141
Thereafter		3,815
Total	$	32,720

If our customers choose to license cloud-based versions of our products and services rather than licensing transaction-based products and services, the associated revenue will shift from being recognized at the time of the transaction to being recognized over the subscription period or upon consumption, as applicable.

Share Repurchases

For the fiscal years ended June 30, 2018, 2017, and 2016, we repurchased 99 million shares, 170 million shares, and 294 million shares of our common stock for $8.6 billion, $10.3 billion, and $14.8 billion, respectively, through our share repurchase programs. All repurchases were made using cash resources. Refer to Note 18 – Stockholders’ Equity of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

Dividends

Refer to Note 18 – Stockholders’ Equity of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

Off-Balance Sheet Arrangements

We provide indemnifications of varying scope and size to certain customers against claims of intellectual property infringement made by third parties arising from the use of our products and certain other matters. Additionally, we have agreed to cover damages resulting from breaches of certain security and privacy commitments in our cloud business. In evaluating estimated losses on these obligations, we consider factors such as the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of loss. These obligations did not have a material impact in our consolidated financial statements during the periods presented.

Contractual Obligations

The following table summarizes the payments due by fiscal year for our outstanding contractual obligations as of June 30, 2018:

(In millions)	2019		2020-2021		2022-2023		Thereafter		Total
Long-term debt: (a)
Principal payments	$	4,000	$	9,268	$	10,794	$	52,836	$	76,898
Interest payments		2,377		4,495		4,066		31,247		42,185
Construction commitments (b)		1,793		107		0		0		1,900
Operating leases, including imputed interest (c)		1,538		2,567		1,778		2,416		8,299
Finance leases, including imputed interest (c)		470		1,101		1,142		5,751		8,464
Transition tax (d)		1,495		2,808		2,808		10,530		17,641
Purchase commitments (e)		19,321		874		255		408		20,858
Other long-term liabilities (f)		0		76		19		313		408
Total contractual obligations	$	30,994	$	21,296	$	20,862	$	103,501	$	176,653

(a) Refer to Note 12 – Debt of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

(b) Refer to Note 8 – Property and Equipment of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

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(c) Refer toNote 16 – Leases of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

(d) Refer to Note 13 – Income Taxes of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

(e) Amounts represent purchase commitments, including open purchase orders and take-or-pay contracts that are not presented as construction commitments above.

(f) We have excluded long-term tax contingencies, other tax liabilities, and deferred income taxes of $13.6 billion from the amounts presented as the timing of these obligations is uncertain. We have also excluded unearned revenue and non-cash items.

Other Planned Uses of Capital

We will continue to invest in sales, marketing, product support infrastructure, and existing and advanced areas of technology, as well as continue making acquisitions that align with our business strategy. Additions to property and equipment will continue, including new facilities, datacenters, and computer systems for research and development, sales and marketing, support, and administrative staff. We expect capital expenditures to increase in coming years to support growth in our cloud offerings. We have operating and finance leases for datacenters, corporate offices, research and development facilities, retail stores, and certain equipment. We have not engaged in any related party transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of capital resources.

Liquidity

As a result of the TCJA, we are required to pay a one-time transition tax of $17.9 billion on deferred foreign income not previously subject to U.S. income tax. In fiscal year 2018, we paid transition tax of $228 million. Under the TCJA, the remaining transition tax of $17.6 billion is payable interest-free over eight years, with 8% due in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight.

We expect existing cash, cash equivalents, short-term investments, cash flows from operations, and access to capital markets to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as dividends, share repurchases, debt maturities, material capital expenditures, and the transition tax related to the TCJA, for at least the next 12 months and thereafter for the foreseeable future.

RECENT ACCOUNTING GUIDANCE

Refer to Note 1 – Accounting Policies of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies for us include revenue recognition, impairment of investment securities, goodwill, research and development costs, contingencies, income taxes, and inventories.

Revenue Recognition

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided.

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Judgment is required to determine the stand-alone selling price (“SSP") for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.  

In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.  

Due to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, including the exercise pattern of certain benefits across our portfolio of customers.  

Our products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our products and services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Changes to our estimated variable consideration were not material for the periods presented.

The new standard related to revenue recognition had a material impact in our consolidated financial statements. Refer to Note 1 – Accounting Policies of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

Impairment of Investment Securities

We review investments quarterly for indicators of other-than-temporary impairment. This determination requires significant judgment. In making this judgment, we employ a systematic methodology quarterly that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, the duration and extent to which the fair value is less than cost, and for equity securities, our intent and ability to hold, or plans to sell, the investment. For fixed-income securities, we also evaluate whether we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery. We also consider specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments.

Goodwill

We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1 for us) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital.

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The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.

Research and Development Costs

Costs incurred internally in researching and developing a computer software product are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to production. The amortization of these costs is included in cost of revenue over the estimated life of the products.

Legal and Other Contingencies

The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our consolidated financial statements.

Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accounting literature also provides guidance on derecognition of income tax assets and liabilities, classification of deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our consolidated financial statements.

The TCJA significantly changes existing U.S. tax law and includes numerous provisions that affect our business. Refer to Note 13 – Income Taxes of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

Inventories

Inventories are stated at average cost, subject to the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. Net realizable value is the estimated selling price less estimated costs of completion, disposal, and transportation. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. These reviews include analysis of demand forecasts, product life cycle status, product development plans, current sales levels, pricing strategy, and component cost trends. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to cost of revenue.

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STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management is responsible for the preparation of the consolidated financial statements and related information that are presented in this report. The consolidated financial statements, which include amounts based on management’s estimates and judgments, have been prepared in conformity with accounting principles generally accepted in the United States of America.

The Company designs and maintains accounting and internal control systems to provide reasonable assurance at reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing consolidated financial statements and maintaining accountability for assets. These systems are augmented by written policies, an organizational structure providing division of responsibilities, careful selection and training of qualified personnel, and a program of internal audits.

The Company engaged Deloitte & Touche LLP, an independent registered public accounting firm, to audit and render an opinion on the consolidated financial statements and internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).

The Board of Directors, through its Audit Committee, consisting solely of independent directors of the Company, meets periodically with management, internal auditors, and our independent registered public accounting firm to ensure that each is meeting its responsibilities and to discuss matters concerning internal controls and financial reporting. Deloitte & Touche LLP and the internal auditors each have full and free access to the Audit Committee.

Satya Nadella

Chief Executive Officer

Amy E. Hood

Executive Vice President and Chief Financial Officer

Frank H. Brod

Corporate Vice President, Finance and Administration;
Chief Accounting Officer

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Item 7A

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISKS

We are exposed to economic risk from foreign exchange rates, interest rates, credit risk, and equity prices. We use derivatives instruments to manage these risks, however, they may still impact our consolidated financial statements.

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 positions. Principal currencies hedged include the euro, Japanese yen, British pound, Canadian dollar, and Australian dollar.

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 the fixed-income portfolio to achieve economic returns that correlate to certain global fixed-income indices.

Credit

Our fixed-income portfolio is diversified and consists primarily of investment-grade securities. We manage credit exposures relative to broad-based indices and to facilitate portfolio diversification.

Equity

Securities held in our equity and other investments portfolio are subject to market price risk.

SENSITIVITY ANALYSIS

Historically, we used a value-at-risk (“VaR”) model to estimate and quantify our market risks. This included presenting one-day VaR as well as average, high, and low VaR by risk category throughout the reporting period. Given the changes in size and allocation of our portfolio of financial assets, we believe sensitivity analysis is more informative in representing the potential impact to the portfolio as a result of market movements. Therefore, we have presented a sensitivity analysis for each risk category below.

Sensitivity analysis is not intended to represent actual losses in fair value, including determinations of other-than-temporary losses in fair value in accordance with accounting principles generally accepted in the United States of America, but is used as a risk estimation and management tool.

The following table sets forth the potential loss in future earnings or fair values, including associated derivatives, resulting from hypothetical changes in relevant market rates or prices:

(In millions)
Risk Categories	Hypothetical Change	June 30, 2018			June 30, 2017			Impact
Foreign currency - Revenue	10% decrease in foreign exchange rates	$	(2,187	)	$	(1,785	)	Earnings
Foreign currency - Investments	10% decrease in foreign exchange rates		(70	)		(92	)	Fair Value
Interest rate	100 basis point increase in U.S. treasury interest rates		(2,705	)		(2,394	)	Fair Value
Credit	100 basis point increase in credit spreads		(232	)		(167	)	Fair Value
Equity	10% decrease in equity market prices		(140	)		(323	)	Fair Value

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Item 8

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INCOME STATEMENTS

(In millions, except per share amounts)
Year Ended June 30,	2018		2017		2016
Revenue:
Product	$	64,497	$	63,811	$	67,336
Service and other		45,863		32,760		23,818
Total revenue		110,360		96,571		91,154
Cost of revenue:
Product		15,420		15,175		17,880
Service and other		22,933		19,086		14,900
Total cost of revenue		38,353		34,261		32,780
Gross margin		72,007		62,310		58,374
Research and development		14,726		13,037		11,988
Sales and marketing		17,469		15,461		14,635
General and administrative		4,754		4,481		4,563
Impairment and restructuring		0		306		1,110
Operating income		35,058		29,025		26,078
Other income (expense), net		1,416		876		(439	)
Income before income taxes		36,474		29,901		25,639
Provision for income taxes		19,903		4,412		5,100
Net income	$	16,571	$	25,489	$	20,539
Earnings per share:
Basic	$	2.15	$	3.29	$	2.59
Diluted	$	2.13	$	3.25	$	2.56
Weighted average shares outstanding:
Basic		7,700		7,746		7,925
Diluted		7,794		7,832		8,013
Cash dividends declared per common share	$	1.68	$	1.56	$	1.44

Refer to accompanying notes.

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COMPREHENSIVE INCOME STATEMENTS

(In millions)
Year Ended June 30,	2018			2017			2016
Net income	$	16,571		$	25,489		$	20,539
Other comprehensive income (loss), net of tax:
Net change related to derivatives		39			(218	)		(238	)
Net change related to investments		(2,717	)		(1,116	)		(228	)
Translation adjustments and other		(178	)		167			(262	)
Other comprehensive loss		(2,856	)		(1,167	)		(728	)
Comprehensive income	$	13,715		$	24,322		$	19,811

Refer to accompanying notes. Refer to Note 19 – Accumulated Other Comprehensive Income (Loss) for further information.

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BALANCE SHEETS

(In millions)
June 30,	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	11,946		$	7,663
Short-term investments		121,822			125,318
Total cash, cash equivalents, and short-term investments		133,768			132,981
Accounts receivable, net of allowance for doubtful accounts of $377 and $345		26,481			22,431
Inventories		2,662			2,181
Other		6,751			5,103
Total current assets		169,662			162,696
Property and equipment, net of accumulated depreciation of $29,223 and$24,179		29,460			23,734
Operating lease right-of-use assets		6,686			6,555
Equity and other investments		1,862			6,023
Goodwill		35,683			35,122
Intangible assets, net		8,053			10,106
Other long-term assets		7,442			6,076
Total assets	$	258,848		$	250,312
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	8,617		$	7,390
Short-term debt		0			9,072
Current portion of long-term debt		3,998			1,049
Accrued compensation		6,103			5,819
Short-term income taxes		2,121			718
Short-term unearned revenue		28,905			24,013
Other		8,744			7,684
Total current liabilities		58,488			55,745
Long-term debt		72,242			76,073
Long-term income taxes		30,265			13,485
Long-term unearned revenue		3,815			2,643
Deferred income taxes		541			5,734
Operating lease liabilities		5,568			5,372
Other long-term liabilities		5,211			3,549
Total liabilities		176,130			162,601
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 7,677 and 7,708		71,223			69,315
Retained earnings		13,682			17,769
Accumulated other comprehensive income (loss)		(2,187	)		627
Total stockholders’ equity		82,718			87,711
Total liabilities and stockholders’ equity	$	258,848		$	250,312

Refer to accompanying notes.

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CASH FLOWS STATEMENTS

(In millions)
Year Ended June 30,	2018			2017			2016
Operations
Net income	$	16,571		$	25,489		$	20,539
Adjustments to reconcile net income to net cash from operations:
Asset impairments		0			0			630
Depreciation, amortization, and other		10,261			8,778			6,622
Stock-based compensation expense		3,940			3,266			2,668
Net recognized gains on investments and derivatives		(2,212	)		(2,073	)		(223	)
Deferred income taxes		(5,143	)		(829	)		2,479
Changes in operating assets and liabilities:
Accounts receivable		(3,862	)		(1,216	)		562
Inventories		(465	)		50			600
Other current assets		(952	)		1,028			(1,212	)
Other long-term assets		(285	)		(917	)		(1,110	)
Accounts payable		1,148			81			88
Unearned revenue		5,922			3,820			2,565
Income taxes		18,183			1,792			(298	)
Other current liabilities		798			356			(179	)
Other long-term liabilities		(20	)		(118	)		(406	)
Net cash from operations		43,884			39,507			33,325
Financing
Proceeds from issuance (repayments) of short-term debt, maturities of 90 days or less, net		(7,324	)		(4,963	)		7,195
Proceeds from issuance of debt		7,183			44,344			13,884
Repayments of debt		(10,060	)		(7,922	)		(2,796	)
Common stock issued		1,002			772			668
Common stock repurchased		(10,721	)		(11,788	)		(15,969	)
Common stock cash dividends paid		(12,699	)		(11,845	)		(11,006	)
Other, net		(971	)		(190	)		(369	)
Net cash from (used in) financing		(33,590	)		8,408			(8,393	)
Investing
Additions to property and equipment		(11,632	)		(8,129	)		(8,343	)
Acquisition of companies, net of cash acquired, and purchases of intangible and other assets		(888	)		(25,944	)		(1,393	)
Purchases of investments		(137,380	)		(176,905	)		(129,758	)
Maturities of investments		26,360			28,044			22,054
Sales of investments		117,577			136,350			93,287
Securities lending payable		(98	)		(197	)		203
Net cash used in investing		(6,061	)		(46,781	)		(23,950	)
Effect of foreign exchange rates on cash and cash equivalents		50			19			(67	)
Net change in cash and cash equivalents		4,283			1,153			915
Cash and cash equivalents, beginning of period		7,663			6,510			5,595
Cash and cash equivalents, end of period	$	11,946		$	7,663		$	6,510

Refer to accompanying notes.

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STOCKHOLDERS’ EQUITY STATEMENTS

(In millions)
Year Ended June 30,	2018			2017			2016
Common stock and paid-in capital
Balance, beginning of period	$	69,315		$	68,178		$	68,465
Common stock issued		1,002			772			668
Common stock repurchased		(3,033	)		(2,987	)		(3,689	)
Stock-based compensation expense		3,940			3,266			2,668
Other, net		(1	)		86			66
Balance, end of period		71,223			69,315			68,178
Retained earnings
Balance, beginning of period		17,769			13,118			16,191
Net income		16,571			25,489			20,539
Common stock cash dividends		(12,917	)		(12,040	)		(11,329	)
Common stock repurchased		(7,699	)		(8,798	)		(12,283	)
Cumulative effect of accounting change		(42	)		0			0
Balance, end of period		13,682			17,769			13,118
Accumulated other comprehensive income (loss)
Balance, beginning of period		627			1,794			2,522
Other comprehensive loss		(2,856	)		(1,167	)		(728	)
Cumulative effect of accounting change		42			0			0
Balance, end of period		(2,187	)		627			1,794
Total stockholders’ equity	$	82,718		$	87,711		$	83,090

Refer to accompanying notes.

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NOTES TO FINANCIAL STATEMENTS

NOTE 1 — ACCOUNTING POLICIES

Accounting Principles

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

We have recast certain prior period income tax liabilities as discussed in the Recent Tax Legislation section below. We have also recast prior period securities lending payables to other current liabilities in our consolidated balance sheets to conform to the current period presentation. These items had no impact in our consolidated income statements or net cash from or used in operating, financing, or investing in our consolidated cash flows statements.

Principles of Consolidation

The consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated. Equity investments for which we are able to 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 for 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.

Estimates and Assumptions

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price (“SSP”) of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; product warranties; the fair value of and/or potential impairment of goodwill and intangible assets for our reporting units; product life cycles; useful lives of our tangible and intangible assets; allowances for doubtful accounts; the market value of, and demand for, our inventory; stock-based compensation forfeiture rates; when technological feasibility is achieved for our products; the potential outcome of future tax consequences of events that have been recognized in our consolidated financial statements or tax returns; and determining when investment impairments are other-than-temporary. Actual results and outcomes may differ from management’s estimates and assumptions.

Foreign Currencies

Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income (“OCI”).

Revenue

Product Revenue and Service and Other Revenue

Product revenue includes sales from operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games; and hardware such as PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.

Service and other revenue includes sales from cloud-based solutions that provide customers with software, services, platforms, and content such as Microsoft Office 365, Microsoft Azure, Microsoft Dynamics 365, and Xbox Live; solution support; and consulting services. Service and other revenue also includes sales from online advertising and LinkedIn.

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Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

Nature of Products and Services

Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. In cases where we allocate revenue to software updates, primarily because the updates are provided at no additional charge, revenue is recognized as the updates are provided, which is generally ratably over the estimated life of the related device or license.

Certain volume licensing programs, including Enterprise Agreements, include on-premises licenses combined with Software Assurance (“SA”). SA conveys rights to new software and upgrades released over the contract period and provides support, tools, and training to help customers deploy and use products more efficiently. On-premises licenses are considered distinct performance obligations when sold with SA. Revenue allocated to SA is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits, given that SA comprises distinct performance obligations that are satisfied over time.  

Cloud services, which allow customers to use hosted software over the contract period without taking possession of the software, are provided on either a subscription or consumption basis. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract period. Revenue related to cloud services provided on a consumption basis, such as the amount of storage used in a period, is recognized based on the customer utilization of such resources. When cloud services require a significant level of integration and interdependency with software and the individual components are not considered distinct, all revenue is recognized over the period in which the cloud services are provided.

Revenue from search advertising is recognized when the advertisement appears in the search results or when the action necessary to earn the revenue has been completed. Revenue from consulting services is recognized as services are provided.

Our hardware is generally highly dependent on, and interrelated with, the underlying operating system and cannot function without the operating system. In these cases, the hardware and software license are accounted for as a single performance obligation and revenue is recognized at the point in time when ownership is transferred to resellers or directly to end customers through retail stores and online marketplaces.

Refer to Note 21 – Segment Information and Geographic Data for further information, including revenue by significant product and service offering.

Significant Judgments

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided.

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Judgment is required to determine the SSP for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.

In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.  

Due to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, including the exercise pattern of certain benefits across our portfolio of customers.  

Our products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our products and services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Changes to our estimated variable consideration were not material for the periods presented.

Contract Balances  

Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record a receivable related to revenue recognized for multi-year on-premises licenses as we have an unconditional right to invoice and receive payment in the future related to those licenses.

The opening balance of current and long-term accounts receivable, net of allowance for doubtful accounts, was $22.3 billion as of July 1, 2016.

As of June 30, 2018 and 2017, long-term accounts receivable, net of allowance for doubtful accounts, were $1.8 billion and $1.7 billion, respectively, and are included in other long-term assets in our consolidated balance sheets.

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.

Activity in the allowance for doubtful accounts was as follows:

(In millions)
Year Ended June 30,		2018			2017			2016
Balance, beginning of period	$	361		$	409		$	289
Charged to costs and other		134			58			175
Write-offs		(98	)		(106	)		(55	)
Balance, end of period	$	397		$	361		$	409

Allowance for doubtful accounts included in our consolidated balance sheets:

June 30,		2018		2017		2016
Accounts receivable, net of allowance for doubtful accounts	$	377	$	345	$	392
Other long-term assets		20		16		17
Total	$	397	$	361	$	409

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Unearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include SA and cloud services. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for consulting services to be performed in the future; LinkedIn subscriptions; Office 365 subscriptions; Xbox Live subscriptions; Windows 10 post-delivery support; Dynamics business solutions; Skype prepaid credits and subscriptions; and other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service.

Refer to Note 15 – Unearned Revenue for further information, including unearned revenue by segment and changes in unearned revenue during the period.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced annually with revenue recognized upfront.

Assets Recognized from Costs to Obtain a Contract with a Customer

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets in our consolidated balance sheets.

We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include our internal sales force compensation program and certain partner sales incentive programs as we have determined annual compensation is commensurate with annual sales activities.

Cost of Revenue

Cost of revenue includes: manufacturing and distribution costs for products sold and programs licensed; operating costs related to product support service centers and product distribution centers; costs incurred to include software on PCs sold by original equipment manufacturers (“OEM”), to drive traffic to our websites, and to acquire online advertising space; costs incurred to support and maintain Internet-based products and services, including datacenter costs and royalties; warranty costs; inventory valuation adjustments; costs associated with the delivery of consulting services; and the amortization of capitalized software development costs. Capitalized software development costs are amortized over the estimated lives of the products.

Product Warranty

We provide for the estimated costs of fulfilling our obligations under 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 the country in which we do business, but generally include parts and labor over a period generally ranging from 90 days 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 reevaluate our estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary.

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Research and Development

Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, localization costs incurred to translate software for international markets, and the amortization of purchased software code and services content. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products.

Sales and Marketing

Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs. Advertising costs are expensed as incurred. Advertising expense was $1.6 billion, $1.5 billion, and $1.6 billion in fiscal years 2018, 2017, and 2016, respectively.

Stock-Based Compensation

Compensation cost for stock awards, which include restricted stock units (“RSUs”) and performance stock units (“PSUs”), is measured at the fair value on the grant date and recognized as expense, net of estimated forfeitures, over the related service or performance period. The fair value of stock awards is based on the quoted price of our common stock on the grant date less the present value of expected dividends not received during the vesting period. We measure the fair value of PSUs using a Monte Carlo valuation model. Compensation cost for RSUs is recognized using the straight-line method and for PSUs is recognized using the accelerated method.

Compensation expense for the employee stock purchase plan (“ESPP”) is measured as the discount the employee is entitled to upon purchase and is recognized in the period of purchase.

Income Taxes

Income tax expense includes U.S. and international income taxes, and interest and penalties on uncertain tax positions. Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. Deferred tax assets are reported net of a valuation allowance when it is more likely than not that a tax benefit will not be realized. All deferred income taxes are classified as long-term in our consolidated balance sheets.

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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 in active markets. Our Level 1 non-derivative investments primarily include U.S. government securities, common and preferred stock, and 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, credit spreads, foreign exchange rates, and forward and spot prices for currencies. Our Level 2 non-derivative investments consist primarily of corporate notes and bonds, foreign government bonds, mortgage- and asset-backed securities, commercial paper, certificates of deposit, and U.S. agency securities. 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 and liabilities primarily comprise investments in common and preferred stock, and goodwill and intangible assets, when they are recorded at fair value due to an impairment charge. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities.

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.

Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.

Financial Instruments

Investments

We consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. All cash equivalents and short-term investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in market value, excluding other-than-temporary impairments, are reflected in OCI.

Equity and other investments classified as long-term include both debt and equity instruments. Debt and publicly-traded equity securities are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in the market value of available-for-sale securities, excluding other-than-temporary impairments, are reflected in OCI. Common and preferred stock and other investments that are restricted for more than one year or are not publicly traded are recorded at cost or using the equity method.

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We lend certain fixed-income and equity securities to increase investment returns. These transactions are accounted for as secured borrowings and the loaned securities continue to be carried as investments in our consolidated balance sheets. Cash and/or security interests are received as collateral for the loaned securities with the amount determined based upon the underlying security lent and the creditworthiness of the borrower. Cash received is recorded as an asset with a corresponding liability.

Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Fair value is calculated based on publicly available market information or other estimates determined by management. We employ a systematic methodology on a quarterly basis that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, the duration and extent to which the fair value is less than cost, and for equity securities, our intent and ability to hold, or plans to sell, the investment. For fixed-income securities, we also evaluate whether we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery. We also consider specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense), net and a new cost basis in the investment is established.

Derivatives

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 derivative instruments designated as fair value hedges, the gains (losses) are recognized in earnings in the periods of change together with the offsetting losses (gains) on the hedged items 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 gains (losses) on the derivatives is initially reported as a component of 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), net.

Inventories

Inventories are stated at average cost, subject to the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. Net realizable value is the estimated selling price less estimated costs of completion, disposal, and transportation. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to cost of revenue.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation, and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: computer software developed or acquired for internal use, three to seven years; computer equipment, two to three years; buildings and improvements, five to 15 years; leasehold improvements, three to 20 years; and furniture and equipment, one to 10 years. Land is not depreciated.

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Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our consolidated balance sheets.  

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Goodwill

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1 for us) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

Intangible Assets

All of our intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of benefit, ranging from one to 20 years. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.

Recent Tax Legislation

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect our business. Refer to Note 13 – Income Taxes for further discussion.

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As a result of the TCJA, we have recast certain prior period income tax liabilities in our consolidated balance sheets to conform to the current period presentation. Previously reported balances were impacted as follows:

(In millions)	As Previously Reported		As Adjusted
Balance Sheets				June 30, 2017
Long-term income taxes	$	0	$	13,485
Other long-term liabilities		17,034		3,549

These adjustments had no impact in our consolidated income statements or net cash from or used in operating, financing, or investing in our consolidated cash flows statements.

Recent Accounting Guidance

Recently Adopted Accounting Guidance

Comprehensive Income – Reclassification of Certain Tax Effects

In February 2018, the Financial Accounting Standards Board (“FASB”) issued new guidance to allow a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the TCJA. In the second quarter of fiscal year 2018, we remeasured our deferred taxes related to unrealized gains on our investment balances using the reduced tax rate. As required by GAAP, we recognized the net tax benefit in the provision for income taxes in our consolidated income statements, even though the deferred taxes were initially recognized in AOCI, which resulted in stranded tax effects. We elected to early adopt the standard effective April 1, 2018 and reclassified a $42 million net tax benefit from AOCI to retained earnings in our consolidated balance sheets. Adoption of the standard had no impact to our consolidated income statements or cash flows statements.

Leases

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We are also required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available.

We elected to early adopt the standard effective July 1, 2017 concurrent with our adoption of the new standard related to revenue recognition. We elected the available practical expedients and implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

The standard had a material impact in our consolidated balance sheets, but did not have an impact in our consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. Adoption of the standard required us to restate certain previously reported results, including the recognition of additional ROU assets and lease liabilities for operating leases. Refer to Impacts to Previously Reported Results below for the impact of adoption of the standard in our consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued a new standard related to revenue recognition. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

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We elected to early adopt the standard effective July 1, 2017, using the full retrospective method, which required us to restate each prior reporting period presented. We implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

The most significant impact of the standard relates to our accounting for software license revenue. Specifically, for Windows 10, we recognize revenue predominantly at the time of billing and delivery rather than ratably over the life of the related device. For certain multi-year commercial software subscriptions that include both distinct software licenses and SA, we recognize license revenue at the time of contract execution rather than over the subscription period. Due to the complexity of certain of our commercial license subscription contracts, the actual revenue recognition treatment required under the standard depends on contract-specific terms and in some instances may vary from recognition at the time of billing. Revenue recognition related to our hardware, cloud offerings (such as Office 365), LinkedIn, and professional services remains substantially unchanged.

Adoption of the standard using the full retrospective method required us to restate certain previously reported results, including the recognition of additional revenue and an increase in the provision for income taxes, primarily due to the net change in Windows 10 revenue recognition. In addition, adoption of the standard resulted in an increase in accounts receivable and other current and long-term assets, driven by unbilled receivables from upfront recognition of revenue for certain multi-year commercial software subscriptions that include both distinct software licenses and SA; a reduction of unearned revenue, driven by the upfront recognition of license revenue from Windows 10 and certain multi-year commercial software subscriptions; and an increase in deferred income taxes, driven by the upfront recognition of revenue. Refer to Impacts to Previously Reported Results below for the impact of adoption of the standard in our consolidated financial statements.

Impacts to Previously Reported Results

Adoption of the standards related to revenue recognition and leases impacted our previously reported results as follows:

(In millions, except per share amounts)	As Previously Reported		New Revenue Standard Adjustment		As Restated
Income Statements
Year Ended June 30, 2017
Revenue	$	89,950	$	6,621	$	96,571
Provision for income taxes		1,945		2,467		4,412
Net income		21,204		4,285		25,489
Diluted earnings per share		2.71		0.54		3.25
Year Ended June 30, 2016
Revenue	$	85,320	$	5,834	$	91,154
Provision for income taxes		2,953		2,147		5,100
Net income		16,798		3,741		20,539
Diluted earnings per share		2.10		0.46		2.56

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(In millions)	As Previously Reported		New Revenue Standard Adjustment			New Lease Standard Adjustment		As Restated
Balance Sheets
June 30, 2017
Accounts receivable, net of allowance for doubtful accounts	$	19,792	$	2,639		$	0	$	22,431
Operating lease right-of-use assets		0		0			6,555		6,555
Other current and long-term assets		11,147		32			0		11,179
Unearned revenue		44,479		(17,823	)		0		26,656
Deferred income taxes		531		5,203			0		5,734
Operating lease liabilities		0		0			5,372		5,372
Other current and long-term liabilities		23,464		(26	)		1,183		24,621
Stockholders' equity		72,394		15,317			0		87,711

Adoption of the standards related to revenue recognition and leases had no impact to cash from or used in operating, financing, or investing in our consolidated cash flows statements.

Recent Accounting Guidance Not Yet Adopted

Financial Instruments – Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued new guidance related to accounting for hedging activities. This guidance expands strategies that qualify for hedge accounting, changes how many hedging relationships are presented in the financial statements, and simplifies the application of hedge accounting in certain situations. The standard will be effective for us beginning July 1, 2019, with early adoption permitted for any interim or annual period before the effective date. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of this standard in our consolidated financial statements, including accounting policies, processes, and systems.

Income Taxes – Intra-Entity Asset Transfers

In October 2016, the FASB issued new guidance requiring an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party. This guidance is effective for us beginning July 1, 2018, with early adoption permitted beginning July 1, 2017. We plan to adopt the guidance effective July 1, 2018. Adoption of the guidance will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. We currently expect a net cumulative-effect adjustment of approximately $550 million, which will reverse the deferral of income tax consequences from past intra-entity transfers involving assets other than inventory and new deferred tax assets for amounts not recognized under current GAAP, partially offset by a U.S. deferred tax liability related to global intangible low-taxed income (“GILTI”). Adoption of the standard is expected to result in an increase in long-term deferred tax assets of $2.8 billion, an increase in long-term deferred tax liabilities of $2.1 billion, and a reduction to other current assets of $150 million. As a result of the TCJA, we are continuing to evaluate the impact of this standard in our consolidated financial statements, including accounting policies, processes, and systems.

Financial Instruments – Credit Losses

In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The standard will be effective for us beginning July 1, 2020, with early adoption permitted beginning July 1, 2019. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align our credit loss methodology with the new standard. We are currently evaluating the impact of this standard in our consolidated financial statements, including accounting policies, processes, and systems.  

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Financial Instruments – Recognition, Measurement, Presentation, and Disclosure

In January 2016, the FASB issued a new standard related to certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most prominent among the changes in the standard is the requirement for changes in the fair value of our equity investments, with certain exceptions, to be recognized through net income rather than OCI. Under the standard, equity investments that do not have a readily determinable fair value are eligible for the measurement alternative. Using the measurement alternative, investments without readily determinable fair values will be valued at cost, with adjustments for changes in price or impairments reflected through net income.

The standard will be effective for us beginning July 1, 2018. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment from AOCI to retained earnings as of the effective date. A cumulative-effect adjustment will capture any previously held unrealized gains and losses held in AOCI related to our equity investments carried at fair value as well as the impact of recording the fair value of certain equity investments carried at cost.In preparation for adoption of this standard, we have implemented internal controls to align with the new standard and have concluded that we will elect the measurement alternative for equity investments that do not have readily determinable fair values.

The impact in our consolidated balance sheets upon adoption will not be material. Adoption of the standard will have no impact to cash from or used in operating, financing or investing in our consolidated cash flows statements.

NOTE 2 — EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS 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 and stock awards.

The components of basic and diluted EPS were as follows:

(In millions, except earnings per share)
Year Ended June 30,	2018		2017		2016
Net income available for common shareholders (A)	$	16,571	$	25,489	$	20,539
Weighted average outstanding shares of common stock (B)		7,700		7,746		7,925
Dilutive effect of stock-based awards		94		86		88
Common stock and common stock equivalents (C)		7,794		7,832		8,013
Earnings Per Share
Basic (A/B)	$	2.15	$	3.29	$	2.59
Diluted (A/C)	$	2.13	$	3.25	$	2.56

Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.

NOTE 3 — OTHER INCOME (EXPENSE), NET

The components of other income (expense), net were as follows:

(In millions)
Year Ended June 30,	2018			2017			2016
Dividends and interest income	$	2,214		$	1,387		$	903
Interest expense		(2,733	)		(2,222	)		(1,243	)
Net recognized gains on investments		2,399			2,583			668
Net losses on derivatives		(187	)		(510	)		(443	)
Net losses on foreign currency remeasurements		(218	)		(111	)		(129	)
Other, net		(59	)		(251	)		(195	)
Total	$	1,416		$	876		$	(439	)

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Following are details of net recognized gains (losses) on investments during the periods reported:

(In millions)
Year Ended June 30,	2018			2017			2016
Other-than-temporary impairments of investments	$	(47	)	$	(55	)	$	(322	)
Realized gains from sales of available-for-sale securities		3,478			3,064			1,376
Realized losses from sales of available-for-sale securities		(1,032	)		(426	)		(386	)
Total	$	2,399		$	2,583		$	668

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
June 30, 2018
Cash	$	3,942	$	0	$	0		$	3,942	$	3,942	$	0	$	0
Mutual funds		246		0		0			246		246		0		0
Commercial paper		2,513		0		0			2,513		2,215		298		0
Certificates of deposit		2,058		0		0			2,058		1,865		193		0
U.S. government and agency securities		109,862		62		(1,167	)		108,757		3,678		105,079		0
Foreign government bonds		5,182		1		(10	)		5,173		0		5,173		0
Mortgage- and asset-backed securities		3,868		4		(13	)		3,859		0		3,859		0
Corporate notes and bonds		6,947		21		(56	)		6,912		0		6,912		0
Municipal securities		271		37		(1	)		307		0		307		0
Common and preferred stock		1,220		95		(10	)		1,305		0		0		1,305
Other investments		558		0		0			558		0		1		557
Total	$	136,667	$	220	$	(1,257	)	$	135,630	$	11,946	$	121,822	$	1,862

(In millions)	Cost Basis		Unrealized Gains		Unrealized Losses			Recorded Basis		Cash and Cash Equivalents		Short-term Investments		Equity and Other Investments
June 30, 2017
Cash	$	3,624	$	0	$	0		$	3,624	$	3,624	$	0	$	0
Mutual funds		1,478		0		0			1,478		1,478		0		0
Commercial paper		319		0		0			319		69		250		0
Certificates of deposit		1,358		0		0			1,358		972		386		0
U.S. government and agency securities		112,119		85		(360	)		111,844		16		111,828		0
Foreign government bonds		5,276		2		(13	)		5,265		1,504		3,761		0
Mortgage- and asset-backed securities		3,921		14		(4	)		3,931		0		3,931		0
Corporate notes and bonds		4,786		61		(12	)		4,835		0		4,835		0
Municipal securities		284		43		0			327		0		327		0
Common and preferred stock		2,472		3,062		(34	)		5,500		0		0		5,500
Other investments		523		0		0			523		0		0		523
Total	$	136,160	$	3,267	$	(423	)	$	139,004	$	7,663	$	125,318	$	6,023

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As of June 30, 2018 and 2017, the recorded bases of common and preferred stock that are restricted for more than one year or are not publicly traded were $999million and $1.1 billion, respectively. These investments are carried at cost and are reviewed quarterly for indicators of other-than-temporary impairment. It is not practicable for us to reliably estimate the fair value of these investments.

As of June 30,2018 and 2017, collateral received under agreements for loaned securities was $1.8 billion and $3.7 billion, respectively, and primarily comprised U.S. government and agency securities.

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
June 30, 2018
U.S. government and agency securities	$	82,352	$	(1,064	)	$	4,459	$	(103	)	$	86,811	$	(1,167	)
Foreign government bonds		3,457		(7	)		13		(3	)		3,470		(10	)
Mortgage- and asset-backed securities		2,072		(9	)		96		(4	)		2,168		(13	)
Corporate notes and bonds		3,111		(43	)		301		(13	)		3,412		(56	)
Municipal securities		45		(1	)		0		0			45		(1	)
Common and preferred stock		75		(6	)		8		(4	)		83		(10	)
Total	$	91,112	$	(1,130	)	$	4,877	$	(127	)	$	95,989	$	(1,257	)

	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, 2017
U.S. government and agency securities	$	87,558	$	(348	)	$	371	$	(12	)	$	87,929	$	(360	)
Foreign government bonds		4,006		(2	)		23		(11	)		4,029		(13	)
Mortgage- and asset-backed securities		1,068		(3	)		198		(1	)		1,266		(4	)
Corporate notes and bonds		669		(8	)		177		(4	)		846		(12	)
Common and preferred stock		69		(6	)		148		(28	)		217		(34	)
Total	$	93,370	$	(367	)	$	917	$	(56	)	$	94,287	$	(423	)

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.

Debt Investment Maturities

(In millions)	Cost Basis		Estimated Fair Value
June 30, 2018
Due in one year or less	$	31,590	$	31,451
Due after one year through five years		76,422		75,810
Due after five years through 10 years		21,765		21,396
Due after 10 years		924		922
Total	$	130,701	$	129,579

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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. dollar 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, Canadian dollar, and Australian dollar. As of June 30, 2018 and 2017, the total notional amounts of these foreign exchange contracts sold were $6.1 billion and $8.9 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 June 30, 2018 and 2017, the total notional amounts of these foreign exchange contracts sold were $5.0 billion and $5.1 billion, respectively.

Certain options and forwards not designated as hedging instruments are also used to manage the variability in foreign exchange rates on certain balance sheet amounts and to manage other foreign currency exposures. As of June 30, 2018, the total notional amounts of these foreign exchange contracts purchased and sold were $9.4 billion and $13.4 billion, respectively. As of June 30, 2017, the total notional amounts of these foreign exchange contracts purchased and sold were $8.8 billion and $10.6 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 June 30, 2018, the total notional amounts of equity contracts purchased and sold for managing market price risk were $49 million and $5 million, respectively. As of June 30, 2017, the total notional amounts of equity contracts purchased and sold for managing market price risk were $1.9 billion and $2.4 billion, respectively, of which $1.6 billion and $1.8 billion, respectively, were designated as hedging instruments.

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 June 30, 2018, the total notional amounts of fixed-interest rate contracts purchased and sold were $306 million and $390 million, respectively. As of June 30, 2017, the total notional amounts of fixed-interest rate contracts purchased and sold were $233 million and $352 million, respectively.

In addition, we use “To Be Announced” forward purchase commitments of mortgage-backed assets to gain exposure to agency mortgage-backed securities. These meet the definition of a derivative instrument in cases where physical delivery of the assets is not taken at the earliest available delivery date. As of June 30, 2018 and 2017, the total notional derivative amounts of mortgage contracts purchased were $568 million and $567 million, respectively.

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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 June 30, 2018, the total notional amounts of credit contracts purchased and sold were $4 million and $82 million, respectively. As of June 30, 2017, the total notional amounts of credit contracts purchased and sold were $267 million and $63 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 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 June 30, 2018, 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

The following table presents the fair values of derivative instruments designated as hedging instruments (“designated hedge derivatives”) and not designated as hedging instruments (“non-designated hedge derivatives”). 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:

		Assets															Liabilities
(In millions)	Short-term Investments			Other Current Assets				Equity and Other Investments			Other Long-term Assets				Other Current Liabilities				Other Long-term Liabilities
June 30, 2018
Non-designated Hedge Derivatives
Foreign exchange contracts	$	10			$	221			$	0		$	25			$	(193	)		$	(4	)
Equity contracts		2				0				0			0				(7	)			0
Interest rate contracts		11				0				0			0				(2	)			0
Credit contracts		0				0				0			0				(1	)			0
Total	$	23			$	221			$	0		$	25			$	(203	)		$	(4	)
Designated Hedge Derivatives
Foreign exchange contracts	$	95			$	174			$	0		$	0			$	0			$	0
Equity contracts		0				0				0			0				0				0
Total	$	95			$	174			$	0		$	0			$	0			$	0
Total gross amounts of derivatives	$	118			$	395			$	0		$	25			$	(203	)		$	(4	)
Gross derivatives either offset or subject to an enforceable master netting agreement	$	113			$	395			$	0		$	25			$	(203	)		$	(4	)
Gross amounts of derivatives offset on the balance sheet		(14	)			(135	)			0			(3	)			150				3
Net amounts presented on the balance sheet		99				260				0			22				(53	)			(1	)
Gross amounts of derivatives not offset on the balance sheet		0				0				0			0				0				0
Cash collateral received		0				0				0			0				(235	)			0
Net amount	$	99			$	260			$	0		$	22			$	(288	)		$	(1	)

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	Assets															Liabilities
(In millions)	Short-term Investments			Other Current Assets				Equity and Other Investments				Other Long-term Assets				Other Current Liabilities				Other Long-term Liabilities
June 30, 2017
Non-designated Hedge Derivatives
Foreign exchange contracts	$	9			$	203			$	0			$	6			$	(134	)		$	(8	)
Equity contracts		3				0				0				0				(6	)			0
Interest rate contracts		3				0				0				0				(7	)			0
Credit contracts		5				0				0				0				(1	)			0
Total	$	20			$	203			$	0			$	6			$	(148	)		$	(8	)
Designated Hedge Derivatives
Foreign exchange contracts	$	80			$	133			$	0			$	0			$	(3	)		$	0
Equity contracts		0				0				67				0				(186	)			0
Total	$	80			$	133			$	67			$	0			$	(189	)		$	0
Total gross amounts of derivatives	$	100			$	336			$	67			$	6			$	(337	)		$	(8	)
Gross derivatives either offset or subject to an enforceable master netting agreement	$	100			$	336			$	67			$	6			$	(334	)		$	(8	)
Gross amounts of derivatives offset on the balance sheet		(20	)			(132	)			(67	)			(8	)			221				7
Net amounts presented on the balance sheet		80				204				0				(2	)			(113	)			(1	)
Gross amounts of derivatives not offset on the balance sheet		0				0				0				0				0				0
Cash collateral received		0				0				0				0				(228	)			0
Net amount	$	80			$	204			$	0			$	(2	)		$	(341	)		$	(1	)

Refer to Note 4 – Investments and Note 6 – Fair Value Measurements for further information.

Fair Value Hedge Gains (Losses)

We recognized in other income (expense), net the following gains (losses) on contracts designated as fair value hedges and their related hedged items:

(In millions)
Year Ended June 30,	2018			2017			2016
Foreign Exchange Contracts
Derivatives	$	25		$	441		$	(797	)
Hedged items		78			(386	)		838
Total amount of ineffectiveness	$	103		$	55		$	41
Equity Contracts
Derivatives	$	(324	)	$	(74	)	$	(76	)
Hedged items		324			74			76
Total amount of ineffectiveness	$	0		$	0		$	0
Amount of equity contracts excluded from effectiveness assessment	$	80		$	(80	)	$	(10	)

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Cash Flow Hedge Gains (Losses)

We recognized the following gains (losses) on foreign exchange contracts designated as cash flow hedges:

(In millions)
Year Ended June 30,	2018			2017			2016
Effective Portion
Gains recognized in other comprehensive income (net of tax of $11, $4, and $24)	$	219		$	328		$	351
Gains reclassified from accumulated other comprehensive income (loss) into revenue		185			555			625
Amount Excluded from Effectiveness Assessment and Ineffective Portion
Losses recognized in other income (expense), net		(255	)		(389	)		(354	)

We estimate that $179 million of net derivative gains included in AOCI as of June 30, 2018 will be reclassified into earnings within the following 12 months. No significant amounts of gains (losses) were reclassified from AOCI into earnings as a result of forecasted transactions that failed to occur during fiscal year 2018.

Non-designated Derivative Gains (Losses)

Gains (losses) from changes in fair values of derivatives that are not designated as hedges are primarily recognized in other income (expense), net. 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), net, which were immaterial for the periods presented.

(In millions)
Year Ended June 30,	2018			2017			2016
Foreign exchange contracts	$	(33	)	$	(117	)	$	(55	)
Equity contracts		(87	)		(114	)		(21	)
Interest rate contracts		(15	)		14			10
Credit contracts		(2	)		5			(1	)
Other contracts		0			(22	)		(87	)
Total	$	(137	)	$	(234	)	$	(154	)

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NOTE 6 — FAIR VALUE MEASUREMENTS

Financial 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
June 30, 2018
Assets
Mutual funds	$	246	$	0	$	0	$	246	$	0		$	246
Commercial paper		0		2,513		0		2,513		0			2,513
Certificates of deposit		0		2,058		0		2,058		0			2,058
U.S. government and agency securities		107,015		1,742		0		108,757		0			108,757
Foreign government bonds		22		5,054		0		5,076		0			5,076
Mortgage- and asset-backed securities		0		3,855		0		3,855		0			3,855
Corporate notes and bonds		0		6,894		15		6,909		0			6,909
Municipal securities		0		307		0		307		0			307
Common and preferred stock		287		0		18		305		0			305
Derivatives		1		535		2		538		(152	)		386
Total	$	107,571	$	22,958	$	35	$	130,564	$	(152	)	$	130,412
Liabilities
Derivatives and other	$	1	$	206	$	0	$	207	$	(153	)	$	54

(In millions)		Level 1		Level 2		Level 3		Gross Fair Value		Netting	(a)		Net Fair Value
June 30, 2017
Assets
Mutual funds	$	1,478	$	0	$	0	$	1,478	$	0		$	1,478
Commercial paper		0		319		0		319		0			319
Certificates of deposit		0		1,358		0		1,358		0			1,358
U.S. government and agency securities		109,228		2,616		0		111,844		0			111,844
Foreign government bonds		0		5,187		0		5,187		0			5,187
Mortgage- and asset-backed securities		0		3,934		0		3,934		0			3,934
Corporate notes and bonds		0		4,829		1		4,830		0			4,830
Municipal securities		0		327		0		327		0			327
Common and preferred stock		2,414		1,994		18		4,426		0			4,426
Derivatives		1		508		0		509		(227	)		282
Total	$	113,121	$	21,072	$	19	$	134,212	$	(227	)	$	133,985
Liabilities
Derivatives and other	$	0	$	345	$	39	$	384	$	(228	)	$	156

(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 changes in our Level 3 financial instruments that are measured at fair value on a recurring basis were immaterial during the periods presented.

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The following table reconciles the total “Net Fair Value” of assets above to the balance sheet presentation of these same assets in Note 4 – Investments.

(In millions)
June 30,		2018			2017
Net fair value of assets measured at fair value on a recurring basis	$	130,412		$	133,985
Cash		3,942			3,624
Common and preferred stock measured at fair value on a nonrecurring basis		999			1,073
Other investments measured at fair value on a nonrecurring basis		557			523
Less derivative net assets classified as other current and long-term assets		(282	)		(202	)
Other		2			1
Recorded basis of investment components	$	135,630		$	139,004

Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During fiscal year 2018 and 2017, we did not record any material other-than-temporary impairments on financial assets required to be measured at fair value on a nonrecurring basis.

NOTE 7 — INVENTORIES

The components of inventories were as follows:

(In millions)
June 30,	2018		2017
Raw materials	$	655	$	797
Work in process		54		145
Finished goods		1,953		1,239
Total	$	2,662	$	2,181

NOTE 8 — PROPERTY AND EQUIPMENT

The components of property and equipment were as follows:

(In millions)
June 30,	2018			2017
Land	$	1,254		$	1,107
Buildings and improvements		20,604			16,284
Leasehold improvements		4,735			5,064
Computer equipment and software		27,633			21,414
Furniture and equipment		4,457			4,044
Total, at cost		58,683			47,913
Accumulated depreciation		(29,223	)		(24,179	)
Total, net	$	29,460		$	23,734

During fiscal years 2018, 2017, and 2016, depreciation expense was $7.7 billion, $6.1 billion, and $4.9 billion, respectively. We have committed $1.9 billion for the construction of new buildings, building improvements, and leasehold improvements as of June 30, 2018.

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NOTE 9 — BUSINESS COMBINATIONS

LinkedIn Corporation

On December 8, 2016, we completed our acquisition of all issued and outstanding shares of LinkedIn Corporation, the world’s largest professional network on the Internet, for a total purchase price of $27.0 billion. The purchase price consisted primarily of cash of $26.9 billion. The acquisition is expected to accelerate the growth of LinkedIn, Office 365, and Dynamics 365. The financial results of LinkedIn have been included in our consolidated financial statements since the date of the acquisition.

The allocation of the purchase price to goodwill was completed as of June 30, 2017.

The major classes of assets and liabilities to which we allocated the purchase price were as follows:  

(In millions)
Cash and cash equivalents	$	1,328
Short-term investments		2,110
Other current assets		697
Property and equipment		1,529
Intangible assets		7,887
Goodwill (a)		16,803
Short-term debt (b)		(1,323	)
Other current liabilities		(1,117	)
Deferred income taxes		(774	)
Other		(131	)
Total purchase price	$	27,009

(a) Goodwill was assigned to our Productivity and Business Processes segment. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of LinkedIn. None of the goodwill is expected to be deductible for income tax purposes.

(b) Convertible senior notes issued by LinkedIn on November 12, 2014, substantially all of which were redeemed after our acquisition of LinkedIn. The remaining $18 million of notes are not redeemable and are included in long-term debt in our consolidated balance sheets. Refer to Note 12 – Debt for further information.

Following are the details of the purchase price allocated to the intangible assets acquired:

(In millions)	Amount		Weighted Average Life
Customer-related	$	3,607		7 years
Marketing-related (trade names)		2,148		20 years
Technology-based		2,109		3 years
Contract-based		23		5 years
Fair value of intangible assets acquired	$	7,887		9 years

Our consolidated income statements include the following revenue and operating loss attributable to LinkedIn since the date of acquisition:

(In millions)
Year Ended June 30,		2017
Revenue	$	2,271
Operating loss		(924	)

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Following are the supplemental consolidated financial results of Microsoft Corporation on an unaudited pro forma basis, as if the acquisition had been consummated on July 1, 2015:

(In millions, except earnings per share)
Year Ended June 30,		2017		2016
Revenue	$	98,291	$	94,490
Net income		25,179		19,128
Diluted earnings per share		3.21		2.38

These pro forma results were based on estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had we been a combined company during the periods presented and are not necessarily indicative of our consolidated results of operations in future periods. The pro forma results include adjustments related to purchase accounting, primarily amortization of intangible assets. Acquisition costs and other nonrecurring charges were immaterial and are included in the earliest period presented.

GitHub Inc.

On June 4, 2018, we entered into a definitive agreement to acquire GitHub Inc. (“GitHub”) for $7.5 billion in an all-stock transaction. We expect the acquisition will close by the end of the calendar year, subject to approval by GitHub’s shareholders, satisfaction of certain regulatory approvals, and other customary closing conditions. GitHub will be included in our consolidated results of operations as of the date of acquisition.

Other

During fiscal year 2018, we completed nine acquisitions for total consideration of $948 million, substantially all of which was paid in cash. These entities have been included in our consolidated results of operations since their respective acquisition dates. Pro forma results of operations for these acquisitions have not been presented because the effects of these business combinations, individually and in aggregate, were not material to our consolidated results of operations.

NOTE 10 — GOODWILL

Changes in the carrying amount of goodwill were as follows:

(In millions)	June 30, 2016			Acquisitions				Other				June 30, 2017			Acquisitions			Other				June 30, 2018
Productivity and Business Processes		$	6,678		$	17,072	(a)		$	(11	)		$	23,739		$	72		$	12			$	23,823
Intelligent Cloud			5,467			49				39				5,555			164			(16	)			5,703
More Personal Computing			5,727			115				(14	)			5,828			394			(65	)			6,157
Total		$	17,872		$	17,236			$	14			$	35,122		$	630		$	(69	)		$	35,683

(a) Includes goodwill related to LinkedIn and other acquisitions. Refer to Note 9 – Business Combinations for further information.

The measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months. Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.

Any change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are presented as “Other” in the above table. Also included in “Other” are business dispositions and transfers between segments due to reorganizations, as applicable.

As of June 30, 2018 and 2017, accumulated goodwill impairment was $11.3 billion.

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Goodwill Impairment  

We test goodwill for impairment annually on May 1 at the reporting unit level, primarily using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital. We believe use of a discounted cash flow approach is the most reliable indicator of the fair values of the businesses.

No instances of impairment were identified in our May 1, 2018, May 1, 2017, or May 1, 2016 tests.

NOTE 11 — INTANGIBLE ASSETS

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

(In millions)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
June 30,						2018							2017
Technology-based	$	7,220	$	(5,018	)	$	2,202	$	7,765	$	(4,318	)	$	3,447
Customer-related		4,031		(1,205	)		2,826		4,045		(692	)		3,353
Marketing-related		4,006		(1,071	)		2,935		4,016		(829	)		3,187
Contract-based		679		(589	)		90		841		(722	)		119
Total	$	15,936	$	(7,883	)	$	8,053	$	16,667	$	(6,561	)	$	10,106

No material impairments of intangible assets were identified during fiscal year 2018 or 2017.

During fiscal year 2016, we recorded impairment charges of $480 million related to intangible assets in the Devices reporting unit within our More Personal Computing segment. In the fourth quarter of fiscal year 2016, we tested these intangible assets for recoverability due to changes in facts and circumstances associated with the shift in strategic direction and reduced profitability expectations for our Phone business. Based on the results of our testing, we determined that the carrying value of the intangible assets was not recoverable, and an impairment charge was recorded to the extent that estimated fair value exceeded carrying value. We primarily used the income approach to determine the fair value of the intangible assets and determine the amount of impairment.

These intangible assets impairment charges were included in impairment and restructuring expenses in our consolidated income statement and reflected in Corporate and Other in our table of operating income (loss) by segment in Note 21 – Segment Information and Geographic Data.

We estimate that we have no significant residual value related to our intangible assets.

The components of intangible assets acquired during the periods presented were as follows:

(In millions)	Amount		Weighted Average Life		Amount		Weighted Average Life
Year Ended June 30,	2018				2017
Technology-based	$	178		4 years	$	2,265		2 years
Marketing-related		14		5 years		2,148		19 years
Contract-based		14		4 years		63		6 years
Customer-related		13		5 years		3,607		7 years
Total	$	219		5 years	$	8,083		9 years

Intangible assets amortization expense was $2.2 billion, $1.7 billion, and $978 million for fiscal years 2018, 2017, and 2016, respectively. Amortization of capitalized software was $54 million, $55 million, and $69 million for fiscal years 2018, 2017, and 2016, respectively.

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The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2018:

(In millions)
Year Ending June 30,
2019	$	1,785
2020		1,260
2021		1,043
2022		949
2023		806
Thereafter		2,210
Total	$	8,053

NOTE 12 — DEBT

Short-term Debt

As of June 30, 2018, we had no commercial paper issued and outstanding. As of June 30, 2017, we had $9.1 billion of commercial paper issued and outstanding, with a weighted average interest rate of 1.01% and maturities ranging from 25 days to 264 days. The estimated fair value of this commercial paper approximates its carrying value.

We have two $5.0 billion credit facilities that expire on October 30, 2018 and October 31, 2022, respectively. These credit facilities serve as a back-up for our commercial paper program. As of June 30, 2018, we were in compliance with the only financial covenant in both credit agreements, which requires us to maintain a coverage ratio of at least three times earnings before interest, taxes, depreciation, and amortization to interest expense, as defined in the credit agreements. No amounts were drawn against these credit facilities during any of the periods presented.

Long-term Debt

As of June 30, 2018, the total carrying value and estimated fair value of our long-term debt, including the current portion, were $76.2 billion and $77.5 billion, respectively. As of June 30, 2017, the total carrying value and estimated fair value of our long-term debt, including the current portion, were $77.1 billion and $80.3 billion, respectively. These estimated fair values are based on Level 2 inputs.

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The components of our long-term debt, including the current portion, and the associated interest rates were as follows:

(In millions, except interest rates)	Face Value June 30, 2018		Face Value June 30, 2017		Stated Interest Rate	Effective Interest Rate
Notes
November 15, 2017	$	0	$	600	0.875%	1.084%
May 1, 2018		0		450	1.000%	1.106%
November 3, 2018		1,750		1,750	1.300%	1.396%
December 6, 2018		1,250		1,250	1.625%	1.824%
June 1, 2019		1,000		1,000	4.200%	4.379%
August 8, 2019		2,500		2,500	1.100%	1.203%
November 1, 2019		18		18	0.500%	0.500%
February 6, 2020		1,500		1,500	1.850%	1.952%
February 12, 2020		1,500		1,500	1.850%	1.935%
October 1, 2020		1,000		1,000	3.000%	3.137%
November 3, 2020		2,250		2,250	2.000%	2.093%
February 8, 2021		500		500	4.000%	4.082%
August 8, 2021		2,750		2,750	1.550%	1.642%
December 6, 2021 (a)		2,044		1,996	2.125%	2.233%
February 6, 2022		1,750		1,750	2.400%	2.520%
February 12, 2022		1,500		1,500	2.375%	2.466%
November 3, 2022		1,000		1,000	2.650%	2.717%
November 15, 2022		750		750	2.125%	2.239%
May 1, 2023		1,000		1,000	2.375%	2.465%
August 8, 2023		1,500		1,500	2.000%	2.101%
December 15, 2023		1,500		1,500	3.625%	3.726%
February 6, 2024		2,250		2,250	2.875%	3.041%
February 12, 2025		2,250		2,250	2.700%	2.772%
November 3, 2025		3,000		3,000	3.125%	3.176%
August 8, 2026		4,000		4,000	2.400%	2.464%
February 6, 2027		4,000		4,000	3.300%	3.383%
December 6, 2028 (a)		2,044		1,996	3.125%	3.218%
May 2, 2033 (a)		642		627	2.625%	2.690%
February 12, 2035		1,500		1,500	3.500%	3.604%
November 3, 2035		1,000		1,000	4.200%	4.260%
August 8, 2036		2,250		2,250	3.450%	3.510%
February 6, 2037		2,500		2,500	4.100%	4.152%
June 1, 2039		750		750	5.200%	5.240%
October 1, 2040		1,000		1,000	4.500%	4.567%
February 8, 2041		1,000		1,000	5.300%	5.361%
November 15, 2042		900		900	3.500%	3.571%
May 1, 2043		500		500	3.750%	3.829%
December 15, 2043		500		500	4.875%	4.918%
February 12, 2045		1,750		1,750	3.750%	3.800%
November 3, 2045		3,000		3,000	4.450%	4.492%
August 8, 2046		4,500		4,500	3.700%	3.743%
February 6, 2047		3,000		3,000	4.250%	4.287%
February 12, 2055		2,250		2,250	4.000%	4.063%
November 3, 2055		1,000		1,000	4.750%	4.782%
August 8, 2056		2,250		2,250	3.950%	4.033%
February 6, 2057		2,000		2,000	4.500%	4.528%
Total	$	76,898	$	77,837

(a) Euro-denominated debt securities.

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The notes in the table above are senior unsecured obligations and rank equally with our other senior unsecured debt outstanding. Interest on these notes is paid semi-annually, except for the euro-denominated debt securities on which interest is paid annually. Cash paid for interest on our debt for fiscal years 2018, 2017, and 2016 was $2.4 billion, $1.6 billion, and $1.1billion, respectively. As of June 30, 2018 and 2017, the aggregate debt issuance costs and unamortized discount associated with our long-term debt, including the current portion, were $658 million and $715 million, respectively.

Maturities of our long-term debt for each of the next five years and thereafter are as follows:

(In millions)
Year Ending June 30,
2019	$	4,000
2020		5,518
2021		3,750
2022		8,044
2023		2,750
Thereafter		52,836
Total	$	76,898

NOTE 13 — INCOME TAXES

Recent Tax Legislation

On December 22, 2017, the TCJA was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect our business, such as imposing a one-time transition tax on deemed repatriation of deferred foreign income, reducing the U.S. federal statutory tax rate, and adopting a territorial tax system. The TCJA required us to incur a one-time transition tax on deferred foreign income not previously subject to U.S. income tax at a rate of 15.5% for foreign cash and certain other net current assets, and 8% on the remaining income. The TCJA also reduced the U.S. federal statutory tax rate from 35% to 21% effective January 1, 2018. For fiscal year 2018, our blended U.S. federal statutory tax rate is 28.1%. This is the result of using the tax rate of 35% for the first and second quarter of fiscal year 2018 and the reduced tax rate of 21% for the third and fourth quarter of fiscal year 2018. The TCJA includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a base erosion anti-abuse tax (“BEAT”) measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. The GILTI and BEAT provisions of the TCJA will be effective for us beginning July 1, 2018.

The TCJA was effective in the second quarter of fiscal year 2018. As of June 30, 2018, we have not completed our accounting for the estimated tax effects of the TCJA. During fiscal year 2018, we recorded a provisional net charge of $13.7 billion related to the TCJA based on reasonable estimates for those tax effects. Due to the timing of the enactment and the complexity in applying the provisions of the TCJA, the provisional net charge is subject to revisions as we continue to complete our analysis of the TCJA, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service (“IRS”), FASB, and other standard-setting and regulatory bodies. Adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. Our accounting for the estimated tax effects of the TCJA will be completed during the measurement period, which is not expected to extend beyond one year from the enactment date. The impacts of our estimates are described further below.

During fiscal year 2018, we recorded an estimated net charge of $13.7 billion related to the TCJA, due to the impact of the one-time transition tax on the deemed repatriation of deferred foreign income of $17.9 billion, offset in part by the impact of changes in the tax rate of $4.2 billion, primarily on deferred tax assets and liabilities.

We recorded an estimated $17.9 billion charge in fiscal year 2018 related to the transition tax, which was included in the provision for income taxes in our consolidated income statements and income taxes in our consolidated balance sheets. We have not yet completed our accounting for the transition tax as our analysis of deferred foreign income is not complete. To calculate the transition tax, we estimated our deferred foreign income for fiscal year 2018 because these tax returns are not complete or due. Fiscal year 2018 taxable income will be known once the respective tax returns are completed and filed. In addition, U.S. and foreign audit settlements may significantly impact the estimated transition tax. The impact of the U.S. and foreign audits on the transition tax will be known as the audits are concluded.

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In addition, we recorded an estimated $4.2 billion benefit in fiscal year 2018 from the impact of changes in the tax rate, primarily on deferred tax assets and liabilities, which was included in provision for income taxes in our consolidated income statements and deferred income taxesand long-term income taxesin our consolidated balance sheets. We remeasured our deferred taxes to reflect the reduced rate that will apply when these deferred taxes are settled or realized in future periods.

The TCJA subjects a U.S. corporation to tax on its GILTI. Due to the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the TCJA and the application of GAAP. Under GAAP, we can make an accounting policy election to either treat taxes due on the GILTI inclusion as a current period expense or factor such amounts into our measurement of deferred taxes. We elected the deferred method, and the corresponding deferred tax assets and liabilities are included in the table of deferred income tax assets and liabilities below.

On August 1, 2018, the Internal Revenue Service published on its website proposed regulations relating to the transition tax imposed by the TCJA. Once published in the Federal Register, the proposed regulations are subject to a 60-day comment period. Final regulations are expected to be issued after consideration of comments. We are currently evaluating the impact of the proposed regulations.

Provision for Income Taxes

The components of the provision for income taxes were as follows:

(In millions)
Year Ended June 30,	2018			2017			2016
Current Taxes
U.S. federal	$	19,764		$	2,739		$	545
U.S. state and local		934			30			136
Foreign		4,348			2,472			1,940
Current taxes	$	25,046		$	5,241		$	2,621
Deferred Taxes
U.S. federal	$	(4,292	)	$	(554	)	$	1,919
U.S. state and local		(458	)		269			111
Foreign		(393	)		(544	)		449
Deferred taxes	$	(5,143	)	$	(829	)	$	2,479
Provision for income taxes	$	19,903		$	4,412		$	5,100

U.S. and foreign components of income before income taxes were as follows:

(In millions)
Year Ended June 30,	2018		2017		2016
U.S.	$	11,527	$	6,843	$	5,125
Foreign		24,947		23,058		20,514
Income before income taxes	$	36,474	$	29,901	$	25,639

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Effective Tax Rate

The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate were as follows:

Year Ended June 30,	2018		2017		2016
Federal statutory rate		28.1%		35.0%		35.0%
Effect of:
Foreign earnings taxed at lower rates		(7.8)%		(11.6)%		(14.5)%
Impacts of TCJA		37.7%		0%		0%
Phone business losses		0%		(5.7)%		1.0%
Excess tax benefits relating to stock-based compensation		(2.5)%		(2.1)%		(1.6)%
Interest, net		1.2%		1.4%		0.9%
Other reconciling items, net		(2.1)%		(2.2)%		(0.9)%
Effective rate		54.6%		14.8%		19.9%

The increase from the federal statutory rate in fiscal year 2018 is primarily due to the net charge related to the enactment of the TCJA in the second quarter of fiscal year 2018, offset in part by earnings taxed at lower rates in foreign jurisdictions. The decrease from the federal statutory rate in fiscal year 2017 and 2016 is primarily due to earnings taxed at lower rates in foreign jurisdictions. Our foreign regional operating centers in Ireland, Singapore and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated 87%, 76%, and 91% of our foreign income before tax in fiscal years 2018, 2017, and 2016, respectively. Other reconciling items, net consists primarily of tax credits, U.S. state income taxes, and domestic production activities deduction. In fiscal years 2018, 2017, and 2016, there were no individually significant other reconciling items.

The increase in our effective tax rate for fiscal year 2018 compared to fiscal year 2017 was primarily due to the net charge related to the enactment of the TCJA and the realization of tax benefits attributable to previous Phone business losses in fiscal year 2017. The decrease in our effective tax rate for fiscal year 2017 compared to fiscal year 2016 was primarily due to the realization of tax benefits attributable to previous Phone business losses, offset in part by changes in the mix of our income before income taxes between the U.S. and foreign countries.

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The components of the deferred income tax assets and liabilities were as follows:

(In millions)
June 30,	2018				2017
Deferred Income Tax Assets
Stock-based compensation expense	$		460		$		777
Accruals, reserves, and other expenses			1,832				1,859
Loss and credit carryforwards			3,369				4,809
Depreciation and amortization			351				53
Other			56				255
Deferred income tax assets			6,068				7,753
Less valuation allowance			(3,186	)			(3,310	)
Deferred income tax assets, net of valuation allowance	$		2,882		$		4,443
Deferred Income Tax Liabilities
Foreign earnings	$	0			$	(1,134		)
Unrealized gain on investments and debt		0				(1,384		)
Unearned revenue		(639		)		(5,760		)
Depreciation and amortization		(1,103		)		(1,630		)
Other		(312		)		(21		)
Deferred income tax liabilities	$	(2,054		)	$	(9,929		)
Net deferred income tax assets (liabilities)	$	828			$	(5,486		)
Reported As
Other long-term assets	$	1,369			$	248
Long-term deferred income tax liabilities		(541		)		(5,734		)
Net deferred income tax assets (liabilities)	$	828			$	(5,486		)

We recorded a deferred tax liability of $7.4 billion related to the recognition of revenue as part of the adoption of the new revenue standard.

As of June 30, 2018, we had federal, state and foreign net operating loss carryforwards of $257 million, $1.4 billion and $11.4 billion, respectively. The federal and state net operating loss carryforwards will expire in various years from fiscal 2019 through 2038, if not utilized. The majority of our foreign net operating loss carryforwards do not expire. Certain acquired net operating loss carryforwards are subject to an annual limitation, but are expected to be realized with the exception of those which have a valuation allowance.

The valuation allowance disclosed in the table above relates to the foreign net operating loss carryforwards and other net deferred tax assets that may not be realized.

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or recovered.

Income taxes paid, net of refunds, were $5.5 billion, $2.4 billion, and $3.9 billion in fiscal years 2018, 2017, and 2016, respectively.

Uncertain Tax Positions

Unrecognized tax benefits as of June 30, 2018, 2017, and 2016, were $12.0 billion, $11.7 billion, and $10.2 billion, respectively, and were included in long-term income taxes in our consolidated balance sheets. If recognized, these tax benefits would affect our effective tax rates for fiscal years 2018, 2017, and 2016, by $11.3 billion, $10.2 billion, and $8.8 billion, respectively.

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As of June 30, 2018, 2017, and 2016, we had accrued interest expense related to uncertain tax positions of $3.0 billion, $2.3 billion, and $1.9 billion, respectively, net of income tax benefits. Interest expense on unrecognized tax benefits, net of tax effects, was $688 million, $399 million, and $163 million in fiscal years 2018, 2017, and 2016, respectively, and was included in provision for income taxes.

The aggregate changes in the balance of unrecognized tax benefits were as follows:

(In millions)
Year Ended June 30,	2018			2017			2016
Balance, beginning of year	$	11,737		$	10,164		$	9,599
Decreases related to settlements		(193	)		(4	)		(201	)
Increases for tax positions related to the current year		1,445			1,277			1,086
Increases for tax positions related to prior years		151			397			115
Decreases for tax positions related to prior years		(1,176	)		(49	)		(317	)
Decreases due to lapsed statutes of limitations		(3	)		(48	)		(118	)
Balance, end of year	$	11,961		$	11,737		$	10,164

While we settled a portion of the IRS audit for tax years 2004 to 2006 during the third quarter of fiscal year 2011, and a portion of the IRS audit for tax years 2007 to 2009 during the first quarter of fiscal year 2016, we remain under audit for those years. In the second quarter of fiscal year 2018, we settled a portion of the IRS audit for tax years 2010 to 2013. We continue to be subject to examination by the IRS for tax years 2010 to 2017. In February 2012, the IRS withdrew its 2011 Revenue Agents Report for tax years 2004 to 2006 and reopened the audit phase of the examination. As of June 30, 2018, the primary unresolved issue relates to transfer pricing, which could have a significant impact in our consolidated financial statements if not resolved favorably. We believe our allowances for income tax contingencies are adequate. We have not received a proposed assessment for the unresolved issues and do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months.

We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years 1996 to 2017, some of which are currently under audit by local tax authorities. The resolution of each of these audits is not expected to be material to our consolidated financial statements.

NOTE 14 — RESTRUCTURING CHARGES

2016 Restructuring

In the fourth quarter of fiscal year 2016, management approved restructuring plans that resulted in approximately 4,700 job eliminations in fiscal year 2017, primarily across our smartphone hardware business and global sales. In fiscal year 2016, we incurred restructuring charges of $501 million in connection with the 2016 restructuring plans, including severance expenses and other reorganization costs. The actions associated with these restructuring plans were completed as of June 30, 2017.

2017 Restructuring

In June 2017, management approved a sales and marketing restructuring plan. In fiscal year 2017, we recorded employee severance expenses of $306 million primarily related to this sales and marketing restructuring plan. The actions associated with this restructuring plan were completed as of June 30, 2018.

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NOTE 15 — UNEARNED REVENUE

Unearned revenue by segment was as follows:

(In millions)
June 30,	2018		2017
Productivity and Business Processes	$	14,864	$	12,692
Intelligent Cloud		14,706		11,152
More Personal Computing		3,150		2,812
Total	$	32,720	$	26,656

The opening balance of unearned revenue was $22.2 billion as of July 1, 2016.

Changes in unearned revenue were as follows:

(In millions)
Year Ended June 30, 2018
Balance, beginning of period	$	26,656
Deferral of revenue		61,142
Recognition of unearned revenue		(55,078	)
Balance, end of period	$	32,720

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized (“contracted not recognized revenue”), which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted not recognized revenue was $73 billion as of June 30, 2018, of which we expect to recognize approximately 60% of the revenue over the next 12 months and the remainder thereafter.

NOTE 16 — LEASES

We have operating and finance leases for datacenters, corporate offices, research and development facilities, retail stores, and certain equipment. Our leases have remaining lease terms of 1 year to 20 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.

The components of lease expense were as follows:

(In millions)
Year Ended June 30,	2018			2017		2016
Operating lease cost	$	1,585	$	1,412	$	936
Finance lease cost:
Amortization of right-of-use assets	$	243	$	104	$	28
Interest on lease liabilities		175		68		28
Total finance lease cost	$	418	$	172	$	56

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Supplemental cash flow information related to leases was as follows:

(In millions)
Year Ended June 30,	2018			2017		2016
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,522	$	1,157	$	936
Operating cash flows from finance leases		175		68		28
Financing cash flows from finance leases		144		46		6
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		1,571		1,270		1,062
Finance leases		1,933		1,773		413

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)
June 30,	2018			2017
Operating Leases
Operating lease right-of-use assets	$	6,686		$	6,555
Other current liabilities	$	1,399		$	1,423
Operating lease liabilities		5,568			5,372
Total operating lease liabilities	$	6,967		$	6,795
Finance Leases
Property and equipment, gross	$	4,543		$	2,658
Accumulated depreciation		(404	)		(161	)
Property and equipment, net	$	4,139		$	2,497
Other current liabilities	$	176		$	113
Other long-term liabilities		4,125			2,425
Total finance lease liabilities	$	4,301		$	2,538
Weighted Average Remaining Lease Term
Operating leases		7 years			7 years
Finance leases		13 years			13 years
Weighted Average Discount Rate
Operating leases		2.7%			2.5%
Finance leases		5.2%			4.7%

Maturities of lease liabilities were as follows:

(In millions)
Year Ending June 30,	Operating Leases			Finance Leases
2019	$	1,492		$	386
2020		1,347			393
2021		1,086			401
2022		902			408
2023		721			410
Thereafter		2,157			4,036
Total lease payments		7,705			6,034
Less imputed interest		(738	)		(1,733	)
Total	$	6,967		$	4,301

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As of June 30, 2018, we have additional operating and finance leases, primarily for datacenters, that have not yet commenced of $594 million and $2.4 billion, respectively. These operating and finance leaseswill commence between fiscal year 2019 and fiscal year 2020 with lease terms of 1 year to 20 years.

NOTE 17 — CONTINGENCIES

Patent and Intellectual Property Claims

There were 34 patent infringement cases pending against Microsoft as of June 30, 2018, none of which are material individually or in aggregate.

Antitrust, Unfair Competition, and Overcharge Class Actions

Antitrust and unfair competition class action lawsuits were filed against us in British Columbia, Ontario, and Quebec, Canada. All three have been certified on behalf of Canadian indirect purchasers who acquired licenses for Microsoft operating system software and/or productivity application software between 1998 and 2010.

The trial of the British Columbia action commenced in May 2016. Following a mediation, the parties agreed to a global settlement of all three Canadian actions, and have submitted the proposed settlement agreement to the courts in all three jurisdictions for approval. The courts will likely reach a decision on approval in September 2018.

Other Antitrust Litigation and Claims

China State Administration for Industry and Commerce Investigation

In 2014, Microsoft was informed that China’s State Agency for Market Regulation (“SAMR”) (formerly State Administration for Industry and Commerce) had begun a formal investigation relating to China’s Anti-Monopoly Law, and the SAMR conducted onsite inspections of Microsoft offices in Beijing, Shanghai, Guangzhou, and Chengdu. SAMR has stated the investigation relates to compatibility, bundle sales, file verification issues related to Windows and Office software, and potentially other issues.

Product-Related Litigation

U.S. Cell Phone Litigation

Microsoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a defendant in 35 lawsuits filed in the Superior Court for the District of Columbia by individual plaintiffs who allege that radio emissions from cellular handsets caused their brain tumors and other adverse health effects. We assumed responsibility for these claims in our agreement to acquire Nokia’s Devices and Services business and have been substituted for the Nokia defendants. Nine of these cases were filed in 2002 and are consolidated for certain pre-trial proceedings; the remaining cases are stayed. In a separate 2009 decision, the Court of Appeals for the District of Columbia held that adverse health effect claims arising from the use of cellular handsets that operate within the U.S. Federal Communications Commission radio frequency emission guidelines (“FCC Guidelines”) are pre-empted by federal law. The plaintiffs allege that their handsets either operated outside the FCC Guidelines or were manufactured before the FCC Guidelines went into effect. The lawsuits also allege an industry-wide conspiracy to manipulate the science and testing around emission guidelines.

In 2013, the defendants in the consolidated cases moved to exclude the plaintiffs’ expert evidence of general causation on the basis of flawed scientific methodologies. In 2014, the trial court granted in part and denied in part the defendants’ motion to exclude the plaintiffs’ general causation experts. The defendants filed an interlocutory appeal challenging the standard for evaluating expert scientific evidence, which the District of Columbia Court of Appeals heard en banc. In October 2016, the Court of Appeals issued its decision adopting the standard advocated by the defendants and remanding the cases to the trial court for further proceedings under that standard. The plaintiffs have filed supplemental expert evidence, portions of which the defendants have moved to strike.

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Canadian Cell Phone Class Action

Microsoft Mobile Oy, along with other handset manufacturers and network operators, is a defendant in a 2013 class action lawsuit filed in the Supreme Court of British Columbia by a purported class of Canadians who have used cellular phones for at least 1,600 hours, including a subclass of users with brain tumors, alleging adverse health effects from cellular phone use. Microsoft was served with the complaint in June 2014 and has been substituted for the Nokia defendants. The litigation has been dormant for more than three years.

Employment-Related Litigation

Moussouris v. Microsoft

Current and former female Microsoft employees in certain engineering and information technology roles brought this class action in federal court in Seattle in 2015, alleging systemic gender discrimination in pay and promotions. The plaintiffs moved to certify the class in October 2017. Microsoft filed an opposition in January 2018, attaching an expert report showing no statistically significant disparity in pay and promotions between similarly situated men and women. In June 2018, the court denied the plaintiffs’ motion for class certification. The plaintiffs have appealed to the U.S. Court of Appeals for the Ninth Circuit. In July, the court denied Microsoft’s motion for summary judgment with respect to the named plaintiffs.     

Other Contingencies

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

As of June 30, 2018, we accrued aggregate legal liabilities of $323 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $1.1 billion in aggregate beyond recorded amounts are reasonably possible. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact in our consolidated financial statements for the period in which the effects become reasonably estimable.

Indemnifications

We provide indemnifications of varying scope and size to certain customers against claims of intellectual property infringement made by third parties arising from the use of our products and certain other matters.Additionally, we have agreed to cover damages resulting from breaches of certain security and privacy commitments in our cloud business. In evaluating estimated losses on these obligations, we consider factors such as the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of loss. These obligations did not have a material impact in our consolidated financial statements during the periods presented.

NOTE 18 — STOCKHOLDERS’ EQUITY

Shares Outstanding

Shares of common stock outstanding were as follows:

(In millions)
Year Ended June 30,	2018			2017			2016
Balance, beginning of year		7,708			7,808			8,027
Issued		68			70			75
Repurchased		(99	)		(170	)		(294	)
Balance, end of year		7,677			7,708			7,808

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Share Repurchases

On September 16, 2013, our Board of Directors approved a share repurchase program authorizing up to $40.0 billion in share repurchases. This share repurchase program became effective on October 1, 2013, and was completed on December 22, 2016.

On September 20, 2016, our Board of Directors approved a share repurchase program authorizing up to an additional $40.0 billion in share repurchases. This share repurchase program commenced on December 22, 2016 following completion of the prior program approved on September 16, 2013, has no expiration date, and may be suspended or discontinued at any time without notice. As of June 30, 2018, $28.2 billion remained of this $40.0 billion share repurchase program.

We repurchased the following shares of common stock under the share repurchase programs:

(In millions)	Shares		Amount		Shares		Amount		Shares		Amount
Year Ended June 30,	2018				2017				2016
First Quarter		22	$	1,600		63	$	3,550		89	$	4,000
Second Quarter		22		1,800		59		3,533		66		3,600
Third Quarter		34		3,100		25		1,600		69		3,600
Fourth Quarter		21		2,100		23		1,600		70		3,600
Total		99	$	8,600		170	$	10,283		294	$	14,800

Shares repurchased beginning in the third quarter of fiscal year 2017 were under the share repurchase program approved September 20, 2016. All other shares repurchased were under the share repurchase program approved September 16, 2013. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards. All repurchases were made using cash resources.

Dividends

Our Board of Directors declared the following dividends:

Declaration Date	Dividend Per Share			Record Date		Amount			Payment Date
Fiscal Year 2018						(in millions)
September 19, 2017		$	0.42		November 16, 2017		$	3,238		December 14, 2017
November 29, 2017			0.42		February 15, 2018			3,232		March 8, 2018
March 12, 2018			0.42		May 17, 2018			3,226		June 14, 2018
June 13, 2018			0.42		August 16, 2018			3,224		September 13, 2018
Fiscal Year 2017
September 20, 2016		$	0.39		November 17, 2016		$	3,024		December 8, 2016
November 30, 2016			0.39		February 16, 2017			3,012		March 9, 2017
March 14, 2017			0.39		May 18, 2017			3,009		June 8, 2017
June 13, 2017			0.39		August 17, 2017			3,003		September 14, 2017

The dividend declared on June 13, 2018 was included in other current liabilities as of June 30, 2018.

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NOTE 19 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated other comprehensive income (loss) by component:

(In millions)
Year Ended June 30,	2018			2017			2016
Derivatives
Balance, beginning of period	$	134		$	352		$	590
Unrealized gains, net of tax of $11, $4, and $24		218			328			351
Reclassification adjustments for gains included in revenue		(185	)		(555	)		(625	)
Tax expense included in provision for income taxes		6			9			36
Amounts reclassified from accumulated other comprehensive income		(179	)		(546	)		(589	)
Net change related to derivatives, net of tax of $5, $(5), and $(12)		39			(218	)		(238	)
Balance, end of period	$	173		$	134		$	352
Investments
Balance, beginning of period	$	1,825		$	2,941		$	3,169
Unrealized gains (losses), net of tax of $(427), $267, and $120		(1,146	)		517			219
Reclassification adjustments for gains included in other income (expense), net		(2,309	)		(2,513	)		(688	)
Tax expense included in provision for income taxes		738			880			241
Amounts reclassified from accumulated other comprehensive income		(1,571	)		(1,633	)		(447	)
Net change related to investments, net of tax of $(1,165), $(613), and $(121)		(2,717	)		(1,116	)		(228	)
Balance, end of period	$	(892	)	$	1,825		$	2,941
Translation Adjustments and Other
Balance, beginning of period	$	(1,332	)	$	(1,499	)	$	(1,237	)
Translation adjustments and other, net of tax effects of $0, $9, and $(33)		(178	)		167			(262	)
Balance, end of period	$	(1,510	)	$	(1,332	)	$	(1,499	)
Cumulative effect of accounting change		42			0			0
Accumulated other comprehensive income (loss), end of period	$	(2,187	)	$	627		$	1,794

NOTE 20 — EMPLOYEE STOCK AND SAVINGS PLANS

We grant stock-based compensation to employees and directors. As of June 30, 2018, an aggregate of 381 million shares were authorized for future grant under our stock plans. In fiscal year 2018, our Board of Directors approved the 2017 Stock Plan, which authorized an additional 308 million shares for future grant under our stock plans. Awards that expire or are canceled without delivery of shares generally become available for issuance under the plans. We issue new shares of Microsoft common stock to satisfy vesting of awards granted under our stock plans. We also have an ESPP for all eligible employees.

Stock-based compensation expense and related income tax benefits were as follows:

(In millions)
Year Ended June 30,	2018		2017		2016
Stock-based compensation expense	$	3,940	$	3,266	$	2,668
Income tax benefits related to stock-based compensation		823		1,066		882

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Stock Plans

Stock awards entitle the holder to receive shares of Microsoft common stock as the award vests. Stock awards generally vest over a four or five-year service period.

Executive Incentive Plan

Under the Executive Incentive Plan, the Compensation Committee approves stock awards to executive officers and certain senior executives. RSUs generally vest ratably over a four-year service period. PSUs generally vest over a three-year performance period. The number of shares the PSU holder receives is based on the extent to which the corresponding performance goals have been achieved.

Activity for All Stock Plans

The fair value of stock awards was estimated on the date of grant using the following assumptions:

Year Ended June 30,	2018		2017		2016
Dividends per share (quarterly amounts)		$0.39 - $0.42		$0.36 - $0.39		$0.31 - $0.36
Interest rates		1.7% - 2.9%		1.2% - 2.2%		1.1% - 1.8%

During fiscal year 2018, the following activity occurred under our stock plans:

Shares			Weighted Average Grant-Date Fair Value
(In millions)
Stock Awards
Nonvested balance, beginning of year	201		$	46.32
Granted (a)	70			75.88
Vested	(80	)		45.74
Forfeited	(17	)		53.41
Nonvested balance, end of year	174			57.85

(a) Includes 3 million, 2 million, and 1 million of PSUs granted at target and performance adjustments above target levels for fiscal years 2018, 2017, and 2016, respectively.

As of June 30, 2018, there was approximately $7.0 billion of total unrecognized compensation costs related to stock awards. These costs are expected to be recognized over a weighted average period of 3 years. The weighted average grant-date fair value of stock awards granted was $75.88, $55.64, and $41.51 for fiscal years 2018, 2017, and 2016, respectively. The fair value of stock awards vested was $6.6 billion, $4.8 billion, and $3.9 billion, for fiscal years 2018, 2017, and 2016, respectively.

Employee Stock Purchase Plan

We have an ESPP for all eligible employees. Shares of our common stock may be purchased by employees at three-month intervals at 90% of the fair market value on the last trading day of each three-month period. Employees may purchase shares having a value not exceeding 15% of their gross compensation during an offering period. Employees purchased the following shares during the periods presented:

(Shares in millions)
Year Ended June 30,	2018		2017		2016
Shares purchased		13		13		15
Average price per share	$	76.40	$	56.36	$	44.83

As of June 30, 2018, 116 million shares of our common stock were reserved for future issuance through the ESPP.

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Savings Plan

We have a savings plan in the U.S. that qualifies under Section 401(k) of the Internal Revenue Code, and a number of savings plans in international locations. Participating U.S. employees may contribute a portion of their salary, subject to certain limitations. We contribute fifty cents for each dollar a participant contributes in this plan, with a maximum employer contribution of 50% of the IRS contribution limit for the calendar year. Matching contributions for all plans were $807 million, $734 million, and $549 million in fiscal years 2018, 2017, and 2016, respectively, and were expensed as contributed.

NOTE 21 — SEGMENT INFORMATION AND GEOGRAPHIC DATA

In its operation of the business, management, including our chief operating decision maker, who is also our Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with GAAP. During the periods presented, we reported our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.

Our reportable segments are described below.

Productivity and Business Processes

Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises:

• Office Commercial, including Office 365 subscriptions and Office licensed on-premises, comprising Office, Exchange, SharePoint, Skype for Business, and Microsoft Teams, and related Client Access Licenses (“CALs”).

• Office Consumer, including Office 365 subscriptions and Office licensed on-premises, and Office Consumer Services, including Skype, Outlook.com, and OneDrive.

• LinkedIn, including Talent Solutions, Marketing Solutions, and Premium Subscriptions.

• Dynamics business solutions, including Dynamics ERP on-premises, Dynamics CRM on-premises, and Dynamics 365, a set of cloud-based applications across ERP and CRM.

Intelligent Cloud

Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business. This segment primarily comprises:

• Server products and cloud services, including Microsoft SQL Server, Windows Server, Visual Studio, System Center, and related CALs, and Azure.

• Enterprise Services, including Premier Support Services and Microsoft Consulting Services.

More Personal Computing

Our More Personal Computing segment consists of products and services geared towards harmonizing the interests of end users, developers, and IT professionals across all devices. This segment primarily comprises:

• Windows, including Windows OEM licensing and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; Windows Internet of Things (“IoT”); and MSN advertising.

• Devices, including Microsoft Surface, PC accessories, and other intelligent devices.

• Gaming, including Xbox hardware and Xbox software and services, comprising Xbox Live transactions, subscriptions, and advertising (“Xbox Live”), video games, and third-party video game royalties.

• Search.

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Revenue and costs are generally directly attributed to our segments. However, due to the integrated structure of our business, certain revenue recognized and costs incurred by one segment may benefit other segments. Revenue from certain contracts is allocated among the segments based on the relative value of the underlying products and services, which can include allocation based on actual prices charged, prices when sold separately, or estimated costs plus a profit margin. Cost of revenue is allocated in certain cases based on a relative revenue methodology. Operating expenses that are allocated primarily include those relating to marketing of products and services from which multiple segments benefit and are generally allocated based on relative gross margin.

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: legal, including settlements and fines; information technology; human resources; finance; excise taxes; field selling; 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 corporate-level activity is not allocated to our segments, including impairment and restructuring expenses.

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

(In millions)
Year Ended June 30,		2018		2017			2016
Revenue
Productivity and Business Processes	$	35,865	$	29,870		$	25,792
Intelligent Cloud		32,219		27,407			24,952
More Personal Computing		42,276		39,294			40,410
Total	$	110,360	$	96,571		$	91,154
Operating Income (Loss)
Productivity and Business Processes	$	12,924	$	11,389		$	11,756
Intelligent Cloud		11,524		9,127			9,249
More Personal Computing		10,610		8,815			6,183
Corporate and Other		0		(306	)		(1,110	)
Total	$	35,058	$	29,025		$	26,078

Corporate and Other operating loss comprised impairment and restructuring expenses.

No sales to an individual customer or country other than the United States accounted for more than 10% of revenue for the fiscal years 2018, 2017, or 2016. Revenue, classified by the major geographic areas in which our customers are located, was as follows:

(In millions)
Year Ended June 30,	2018		2017		2016
United States (a)	$	55,926	$	51,078	$	46,416
Other countries		54,434		45,493		44,738
Total	$	110,360	$	96,571	$	91,154

(a) Includes billings to OEMs and certain multinational organizations because of the nature of these businesses and the impracticability of determining the geographic source of the revenue.

94

PART II

Item 8

Revenue from external customers, classified by significant product and service offerings, was as follows:

(In millions)
Year Ended June 30,	2018		2017		2016
Office products and cloud services	$	28,316	$	25,573	$	23,868
Server products and cloud services		26,129		21,649		19,062
Windows		19,518		18,593		17,548
Gaming		10,353		9,051		9,202
Search advertising		7,012		6,219		5,428
Enterprise Services		5,846		5,542		5,659
Devices		5,134		5,062		7,888
LinkedIn		5,259		2,271		0
Other		2,793		2,611		2,499
Total	$	110,360	$	96,571	$	91,154

Our commercial cloud revenue, which primarily comprises Office 365 commercial, Azure, Dynamics 365, and other cloud properties, was $23.2 billion, $14.9 billion, and $9.5 billion in fiscal years 2018, 2017, and 2016, respectively. These amounts are primarily included in Office products and services and server products and cloud services in the table above.

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; 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.

Long-lived assets, excluding financial instruments and tax assets, classified by the location of the controlling statutory company and with countries over 10% of the total shown separately, were as follows:

(In millions)
June 30,	2018		2017		2016
United States	$	44,501	$	42,730	$	25,145
Ireland		12,843		12,889		2,099
Luxembourg		6,856		6,854		6,868
Other countries		15,682		13,044		11,047
Total	$	79,882	$	75,517	$	45,159

95

PART II

Item 8

NOTE 22 — QUARTERLY INFORMATION (UNAUDITED)

(In millions, except per share amounts)
Quarter Ended	September 30		December 31			March 31		June 30		Total
Fiscal Year 2018
Revenue	$	24,538	$	28,918		$	26,819	$	30,085	$	110,360
Gross margin		16,260		17,854			17,550		20,343		72,007
Operating income		7,708		8,679			8,292		10,379		35,058
Net income (loss) (a)		6,576		(6,302	)		7,424		8,873		16,571
Basic earnings (loss) per share		0.85		(0.82	)		0.96		1.15		2.15
Diluted earnings (loss) per share (b)		0.84		(0.82	)		0.95		1.14		2.13

Fiscal Year 2017 (c)
Revenue	$	21,928	$	25,826	$	23,212	$	25,605		$	96,571
Gross margin		14,084		15,925		15,152		17,149			62,310
Operating income		6,715		7,905		6,723		7,682	(d)		29,025	(d)
Net income		5,667		6,267		5,486		8,069	(d)		25,489	(d)
Basic earnings per share		0.73		0.81		0.71		1.05			3.29
Diluted earnings per share		0.72		0.80		0.70		1.03	(d)		3.25	(d)

(a) Reflects the net charge (benefit) related to the TCJA of $13.8 billion for the second quarter, $(104) million for the fourth quarter, and $13.7 billion for fiscal year 2018.

(b) Reflects the net charge (benefit) related to the TCJA, which decreased (increased) diluted EPS $1.78 for the second quarter, $(0.01) for the fourth quarter, and $1.75 for fiscal year 2018.

(c) On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

(d) Includes $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan, which decreased operating income, net income, and diluted EPS by $306 million, $243 million, and $0.04, respectively.

96

PART II

Item 8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Microsoft Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Microsoft Corporation and subsidiaries (the “Company”) as of June 30, 2018 and 2017, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended June 30, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2018, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company'sinternal control over financial reporting as of June 30, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 3, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principles

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for revenue from contracts with customers and for accounting for leases in fiscal year 2018 due to the adoption of the new revenue standard and new lease standard, respectively. The Company adopted the new revenue standard using the full retrospective approach and adopted the new lease standard using a modified retrospective approach.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/    DELOITTE & TOUCHE LLP

Seattle, Washington

August 3, 2018

We have served as the Company’s auditor since 1983.

97

PART II

Item 9, 9A

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use, or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the company’s internal control over financial reporting was effective as of June 30, 2018. Deloitte & Touche LLP has audited our internal control over financial reporting as of June 30, 2018; their report is included in Item 9A.

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standards related to revenue recognition and leases on our financial statements to facilitate their adoption on July 1, 2017. There were no significant changes to our internal control over financial reporting due to the adoption of the new standards.

98

PART II

Item 9A

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Microsoft Corporation

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Microsoft Corporation and subsidiaries (the "Company") as of June 30, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2018, based on the criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and the related notes (collectively referred to as the “financial statements”) as of and for the year ended June 30, 2018, of the Company and our report dated August 3, 2018, expressed an unqualified opinion on those financial statements and included an explanatory paragraph related to the Company’s change in method of accounting for revenue from contracts with customers and for accounting for leases in fiscal year 2018 due to the adoption of the new revenue standard and new lease standard, respectively.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/    DELOITTE & TOUCHE LLP

Seattle, Washington

August 3, 2018

99

PART II, III

Item 9B, 10, 11, 12, 13, 14

ITEM 9B. OTHER INFORMATION

During the quarter ended December 31, 2017, Microsoft provided software services to a person or entity identified under section 560.304 of title 31, Code of Federal Regulations. The services constituted a cloud-based spam and malware filtering service and the cloud-based provision of Office 365 software services provided to two entities associated with the Iranian bank, Bank Sepah – Bank Sepah International PLC and Banque Sepah, respectively. For the former, an annual service fee equivalent to $600 was charged for a one-year period beginning in February 2017, and for the latter, use rights were charged at a price equivalent to approximately $55 per month from September 2016 through November 2017, totaling $770. It is not possible to determine the precise profits, if any, attributable to these activities, though they are less than the associated revenues. Microsoft has ceased providing these software services to these entities and has no intention of doing so in the future.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

A list of our executive officers and biographical information appears in Part I, Item 1 of this Form 10-K. Information about our directors may be found under the caption “Our director nominees” in our Proxy Statement for the Annual Meeting of Shareholders to be held November 28, 2018 (the “Proxy Statement”). Information about our Audit Committee may be found under the caption “Board committees” in the Proxy Statement. That information is incorporated herein by reference.

The information in the Proxy Statement set forth under the caption “Section 16(a) beneficial ownership reporting compliance” is incorporated herein by reference.

We have adopted the Microsoft Finance Code of Professional Conduct (the “finance code of ethics”), a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and other finance organization employees. The finance code of ethics is publicly available on our website at https://aka.ms/FinanceCodeProfessionalConduct. If we make any substantive amendments to the finance code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our Chief Executive Officer, Chief Financial Officer, or Chief Accounting Officer, we will disclose the nature of the amendment or waiver on that website or in a report on Form 8-K.

ITEM 11. EXECUTIVE COMPENSATION

The information in the Proxy Statement set forth under the captions “Director compensation,” “Named executive officer compensation,” “Compensation Committee interlocks and insider participation,” and “Compensation Committee report” is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information in the Proxy Statement set forth under the captions “Stock ownership information,” “Principal shareholders” and “Equity compensation plan information” is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information set forth in the Proxy Statement under the captions “Director independence” and “Certain relationships and related transactions” is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information concerning principal accountant fees and services appears in the Proxy Statement under the headings “Fees billed by Deloitte & Touche” and “Policy on Audit Committee pre-approval of audit and permissible non-audit services of independent auditor” and is incorporated herein by reference.

100

PART IV

Item 15

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements and Schedules

The financial statements are set forth under Item 8 of this Form 10-K, as indexed below. Financial statement schedules have been omitted since they either are not required, not applicable, or the information is otherwise included.

Index to Financial Statements	Page
Income Statements			51
Comprehensive Income Statements			52
Balance Sheets			53
Cash Flows Statements			54
Stockholders’ Equity Statements		55
Notes to Financial Statements			56
Report of Independent Registered Public Accounting Firm			97

(b) Exhibit Listing

			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith		Form		Period Ending	Exhibit		Filing Date
3.1	Amended and Restated Articles of Incorporation of Microsoft Corporation				8-K			3.1		12/1/16
3.2	Bylaws of Microsoft Corporation				8-K			3.2		6/14/17
4.1	Form of Indenture between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee (“Base Indenture”)				S-3ASR			4.1		11/20/08
4.2	Form of First Supplemental Indenture for 2.95% Notes due 2014, 4.20% Notes due 2019, and 5.20% Notes due 2039, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, to the Base Indenture				8-K			4.2		5/15/09
4.5	Form of Second Supplemental Indenture for 0.875% Notes due 2013, 1.625% Notes due 2015, 3.00% Notes due 2020, and 4.50% Notes due 2040, dated as of September 27, 2010, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, to the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K			4.2		9/27/10

101

PART IV

Item 15

			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith		Form		Period Ending	Exhibit		Filing Date
4.6	Third Supplemental Indenture for 2.500% Notes due 2016, 4.000% Notes due 2021, and 5.300% Notes due 2041, dated as of February 8, 2011, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, to the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K			4.2		2/8/11
4.7	Fourth Supplemental Indenture for 0.875% Notes due 2017, 2.125% Notes due 2022, and 3.500% Notes due 2042, dated as of November 7, 2012, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, to the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K			4.1		11/7/12
4.8	Fifth Supplemental Indenture for 2.625% Notes due 2033, dated as of May 2, 2013,between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, to the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K			4.1		5/1/13
4.9	Sixth Supplemental Indenture for 1.000% Notes due 2018, 2.375% Notes due 2023, and 3.750% Notes due 2043, dated as of May 2, 2013, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, to the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K			4.2		5/1/13
4.10	Seventh Supplemental Indenture for 2.125% Notes due 2021 and 3.125% Notes due 2028, dated as of December 6, 2013, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, to the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K			4.1		12/6/13

102

PART IV

Item 15

			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith		Form		Period Ending	Exhibit		Filing Date
4.11	Eighth Supplemental Indenture for 1.625% Notes due 2018, 3.625% Notes due 2023, and 4.875% Notes due 2043, dated as of December 6, 2013, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, to the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K			4.2		12/6/13
4.12	Ninth Supplemental Indenture for 1.850% Notes due 2020, 2.375% Notes due 2022, 2.700% Notes due 2025, 3.500% Notes due 2035, 3.750% Notes due 2045, and 4.000% Notes due 2055, dated as of February 12, 2015, between Microsoft Corporation and U.S. Bank National Association, as Trustee, to the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K			4.1		2/12/15
4.13	Tenth Supplemental Indenture for 1.300% Notes due 2018, 2.000% Notes due 2020, 2.650% Notes due 2022, 3.125% Notes due 2025, 4.200% Notes due 2035, 4.450% Notes due 2045, and 4.750% Notes due 2055, dated as of November 3, 2015, between Microsoft Corporation and U.S. Bank National Association, as Trustee, to the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K			4.1		11/3/15
4.14	Eleventh Supplemental Indenture for 1.100% Notes due 2019, 1.550% Notes due 2021, 2.000% Notes due 2023, 2.400% Notes due 2026, 3.450% Notes due 2036, 3.700% Notes due 2046, and 3.950% Notes due 2056, dated as of August 8, 2016, between Microsoft Corporation and U.S. Bank, National Association, as trustee, to the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee				8-K			4.1		8/5/16

103

PART IV

Item 15

			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith		Form		Period Ending		Exhibit		Filing Date
4.15	Twelfth Supplemental Indenture for 1.850% Notes due 2020, 2.400% Notes due 2022, 2.875% Notes due 2024, 3.300% Notes due 2027, 4.100% Notes due 2037, 4.250% Notes due 2047, and 4.500% Notes due 2057, dated as of February 6, 2017, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee, to the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee				8-K				4.1		2/3/17
10.1*	Microsoft Corporation 2001 Stock Plan				10-Q		9/30/16		10.1		10/20/16
10.4*	Microsoft Corporation Employee Stock Purchase Plan				10-K		6/30/12		10.4		7/26/12
10.5*	Microsoft Corporation Deferred Compensation Plan	X
10.6*	Microsoft Corporation 2017 Stock Plan				DEF14A				Annex C		10/16/17
10.7*	Form of Stock Award Agreement Under the Microsoft Corporation 2017 Stock Plan				10-Q		3/31/2018		10.26		4/26/18
10.8*	Form of Performance Stock Award Agreement Under the Microsoft Corporation 2017 Stock Plan				10-Q		3/31/2018		10.27		4/26/18
10.12	Amended and Restated Officers’ Indemnification Trust Agreement between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee				10-Q		9/30/16		10.12		10/20/16
10.13	Amended and Restated Directors’ Indemnification Trust Agreement between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee				10-Q		9/30/16		10.13		10/20/16
10.14*	Microsoft Corporation Deferred Compensation Plan for Non-Employee Directors				10-Q		12/31/17		10.14		1/31/18
10.17*	Executive Officer Incentive Plan				10-Q		9/30/15		10.17		10/22/15
10.18*	Form of Executive Officer Incentive Plan Stock Award Agreement under the Microsoft Corporation 2001 Stock Plan				10-Q		9/30/15		10.18		10/22/15
10.19*	Microsoft Corporation Executive Incentive Plan				10-Q		9/30/16		10.17		10/20/16
10.20*	Form of Executive Incentive Plan (Executive Officer SAs) Stock Award Agreement under the Microsoft Corporation 2001 Stock Plan				10-Q		9/30/16		10.18		10/20/16

104

PART IV

Item 15, 16

			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith		Form		Period Ending		Exhibit		Filing Date
10.21*	Form of Executive Incentive Plan Performance Stock Award Agreement under the Microsoft Corporation 2001 Stock Plan				10-Q		9/30/16		10.25		10/20/16
10.22*	Senior Executive Severance Benefit Plan				10-Q		9/30/16		10.22		10/20/16
10.23*	Offer Letter, dated February 3, 2014, between Microsoft Corporation and Satya Nadella				8-K				10.1		2/4/14
10.24*	Long-Term Performance Stock Award Agreement between Microsoft Corporation and Satya Nadella				10-Q		12/31/14		10.24		1/26/15
10.25*	Form of Executive Officer Incentive Plan Performance Stock Award Agreement under the Microsoft Corporation 2001 Stock Plan				10-Q		9/30/15		10.25		10/22/15
12	Computation of Ratios of Earnings to Fixed Charges	X
21	Subsidiaries of Registrant	X
23.1	Consent of Independent Registered Public Accounting Firm	X
31.1	Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2	Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1**	Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
32.2**	Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101.INS	XBRL Instance Document	X
101.SCH	XBRL Taxonomy Extension Schema	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	X
101.DEF	XBRL Taxonomy Extension Definition Linkbase	X
101.LAB	XBRL Taxonomy Extension Label Linkbase	X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	X

* Indicates a management contract or compensatory plan or arrangement

** Furnished, not filed

ITEM 16. FORM 10-K SUMMARY

None.

105

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, in the City of Redmond, State of Washington, on August 3, 2018.

MICROSOFT CORPORATION

/S/    FRANK H. BROD

Frank H. Brod

Corporate Vice President, Finance and Administration;

Chief Accounting Officer (Principal Accounting Officer)

106

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities indicated on August 3, 2018.

Signature	Title
/s/    JOHN W. THOMPSON         John W. Thompson	Chairman
/s/    SATYA NADELLA         Satya Nadella	Director and Chief Executive Officer
/s/    WILLIAM H. GATES III  William H. Gates III	Director
/s/    REID HOFFMAN  Reid Hoffman	Director
/s/    HUGH F. JOHNSTON         Hugh F. Johnston	Director
/s/    TERI L. LIST-STOLL                 Teri L. List-Stoll	Director
/s/    CHARLES H. NOSKI                 Charles H. Noski	Director
/s/    HELMUT PANKE                 Helmut Panke	Director
/s/    SANDRA E. PETERSON Sandra E. Peterson	Director
/s/    PENNY S.PRITZKER         Penny S. Pritzker	Director
/s/    CHARLES W. SCHARF         Charles W. Scharf	Director
/s/    ARNE M. SORENSON         Arne M. Sorenson	Director
/s/    JOHN W. STANTON         John W. Stanton	Director
/s/    PADMASREE WARRIOR Padmasree Warrior	Director
/s/    AMY E. HOOD         Amy E. Hood	Executive Vice President and Chief Financial Officer (Principal Financial Officer)
/s/    FRANK H. BROD         Frank H. Brod	Corporate Vice President, Finance and Administration; Chief Accounting Officer (Principal Accounting Officer)

107

EX-10.5

Exhibit 10.5

MICROSOFT CORPORATION

DEFERRED COMPENSATION PLAN

(Restated Effective as of May 15, 2015)

1.Purpose.

The purpose of the Microsoft Corporation Deferred Compensation Plan (the “Plan”) is to further the long-term growth of Microsoft Corporation (the “Company”) by allowing selected Company executives and other senior management or highly compensated employees to defer receipt of certain compensation in order to keep their financial interests aligned with the Company and provide them with a long-term incentive to continue employment with the Company.

The Plan was formerly known as the 1998 Microsoft Corporation Stock Option Gain and Bonus Deferral Program.  The name of the Plan was changed pursuant to a restatement effective January 1, 2006.

This Plan is intended (1) to comply with section 409A of the Internal Revenue Code, as amended (the “Code”) and official guidance issued thereunder (except with respect to amounts covered by Appendix B), and (2) to be “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974.  Notwithstanding any other provision of this Plan, this Plan shall be interpreted, operated and administered in a manner consistent with these intentions.

2.Effective Date.

The Plan was originally effective November 18, 1998.  Except as specifically set forth below, this restatement of the Plan is effective as of May 15, 2015.

3.Definitions.

Account – means a bookkeeping account established by the Company for each Participant electing to defer Eligible Income under the Plan, which may include sub-accounts for different types of Eligible Income deferred and for amounts payable at different times and/or payable in different forms.

Acquisition Retention Bonus – means a bonus provided to a Newly Hired Eligible Employee who continues employment with the Company or a Designated Subsidiary after the acquisition of a business by the Company or a Designated Subsidiary or who begins employment with the Company or a Designated Subsidiary as part of a strategic alliance.

Acquisition Signing Bonus – means a bonus provided to a Newly Hired Eligible Employee upon acceptance of an offer to continue employment with the Company or a Designated Subsidiary after the acquisition of a business by the Company or a Designated Subsidiary or to begin employment with the Company or Designated Subsidiary as part of a strategic alliance.

Affiliate – means any corporation or other entity that is treated as a single employer with the Company under Code section 414.

Annual Base Salary – means the regular annual base salary paid to an Eligible Employee.

Annual Bonus – means the amount payable to an Eligible Employee as an annual bonus that is awarded in connection with the Company’s annual process under the Annual Bonus Plan or the cash portion of awards under the Executive Incentive Plan.

Board – means the Board of Directors of Microsoft Corporation.

Code – means the Internal Revenue Code of 1986, as amended.

Company – means Microsoft Corporation.

Date of Hire – means the date of a Participant’s first day of active employment with the Company and its Affiliates.

Designated Subsidiary – means a subsidiary of the Company that has been approved for participation in the Plan by the Senior HR Officer.  A listing of the Designated Subsidiaries is in Appendix A.

Disabled – means:

(a)A Participant (1) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (2) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the participant’s employer.

(b)The Plan Administrator, in its complete and sole discretion, shall determine whether a Participant is Disabled.  The Plan Administrator may require that the Participant submit to an examination on an annual basis, at the expense of the Company, by a competent physician or medical clinic selected by the Plan Administrator to assist in determining whether the Participant is Disabled.  On the basis of such medical evidence, the determination of the Plan Administrator as to whether or not the Participant is Disabled (or whether he continues to be Disabled) shall be conclusive.

Eligible Employee – means:

(a)An Employee of the Company or a Designated Subsidiary working in the U.S. at the Company’s stock level 68 or above and, effective with respect to Eligible Income earned for periods beginning on or after January 1, 2012, an Employee of the Company or a Designated Subsidiary working in the U.S. at the Company’s stock level 67 or above.

(b)An Employee meeting the criteria of subsection (a) will not fail to be considered an Eligible Employee solely as a result of being on paid or unpaid leave.

Eligible Income – means compensation which may be deferred under the Plan, as from time to time determined by the Plan Administrator, including without limitation (1) Regular Enrollment Compensation and (2) New Hire Enrollment Compensation.  Amounts will qualify as “Eligible Income” only if the Participant is on the U.S. payroll of the Company or its Affiliates at the time the amount is payable to the Participant absent deferral.

Employee – means an individual who is a regular employee on the U.S. payroll of the Company or its Affiliates.  The term “Employee” shall not include a person hired as an independent contractor, leased employee, consultant, or a person otherwise designated by the Company or an Affiliate as not eligible to participate in the Plan, even if such person is determined to be a common law employee of the Company or an Affiliate by any governmental or judicial authority.

ERISA – means the Employee Retirement Income Security Act of 1974, as amended.

Fiscal Year Compensation – means “fiscal year compensation” as defined under Treas. Reg. § 1.409A-2(a)(6) or any successor thereto.

Hire Date – means the date an Employee becomes employed by the Company or a Designated Subsidiary.  In the case of an individual who becomes an Employee upon the acquisition of a business by the Company or a Designated Subsidiary, the Employee’s “Hire Date” shall be his transfer date.

Investment Options – means a set of investment options, which may include investment options offered under the 401(k) Plan, and which are from time to time determined by the Plan Administrator and used to credit earnings, gains, and losses on Account balances.

Key Employee – means an employee treated as a “specified employee” under Code section 409A(a)(2)(B)(i) as of his Separation from Service (i.e., a key employee (as defined under Code section 416(i) without regard to paragraph (5) thereof) of a corporation any stock of which is publicly traded on an established securities market or otherwise).  Key Employees shall be determined in accordance with Code section 409A, using a December 31 identification date.  A listing of Key Employees as of an identification date shall be effective for the 12-month period beginning on the April 1 following the identification date.

New Hire Enrollment Compensation – means compensation for a Newly Hired Eligible Employee which is from time to time determined by the Plan Administrator, including without limitation a (1) New Hire Signing Bonus, (2) Acquisition Retention Bonus, and (3) Acquisition Signing Bonus.

New Hire Signing Bonus – means a bonus provided to a Newly Hired Eligible Employee upon acceptance of an offer of employment with the Company or a Designated Subsidiary.

Newly Hired Eligible Employee – means an individual hired by the Company or a Designated Subsidiary who meets the criteria for an Eligible Employee on his Hire Date, provided that an individual who has previously worked for the Company or an Affiliate will only qualify as a “Newly Hired Eligible Employee” if he meets the requirements of Treas. Reg. § 1.409A-2(a)(7) or any successor thereto.  Generally, a re-hired individual will meet these requirements if (1) he has been paid any and all amounts due him under the Plan (and any plans required to be aggregated with the Plan under Code section 409A) prior to re-hire, or (2) he has not been eligible to participate, other than the accrual of earnings, in the Plan (or any other plan required to be aggregated with the Plan under Code section 409A) for at least 24 months.

Open Enrollment – means the period or periods during each Plan Year when Eligible Employees may elect to defer amounts under the Plan.  Open Enrollment shall be held at the time or times designated by the Plan Administrator.  

Participant – means an Eligible Employee who elects to defer Eligible Income under the Plan.

Performance-Based Compensation – means “performance-based compensation” as defined under Code section 409A.  

Plan – means the Microsoft Corporation Deferred Compensation Plan, as amended from time to time.

Plan Administrator – means the Senior HR Officer or, with respect to the eligibility of executive officers of the Company to participate in the Plan, the Compensation Committee of the Board.

Plan Year – means the 12-month period from January 1 to December 31.

Pre-2014 Election Amount – means an amount deferred under the Plan (and earnings thereon) pursuant to a deferral election that (1) becomes irrevocable during an Open Enrollment period occurring before July 1, 2013, or (2) is made by a Newly Hired Eligible Employee under Section 5.1(b)(ii) and becomes irrevocable on or before December 31, 2013.  Thus, Annual Base Salary amounts deferred after 2013 and Annual Bonuses deferred based on elections made after 2013 will not be considered Pre-2014 Election Amounts.  

Regular Enrollment Compensation – means compensation which is from time to time determined by the Plan Administrator, including without limitation (1) Annual Base Salary, and (2) Annual Bonus.

Retirement – means a Separation from Service after attaining Retirement Age.

Retirement Age – means one specified date for each Participant occurring on the earlier of:  (1) Participant’s attainment of age sixty-five (65), or (2) the later of Participant’s attainment of age fifty-five (55) or the tenth (10th) anniversary of his Date of Hire.  When an Employee becomes eligible to participate in the Plan, the Plan Administrator shall determine the Retirement Age for the Employee as one specified date in accordance with the foregoing.

Senior HR Officer – means the senior officer in charge of the Human Resources department.

Separation from Service or Separates from Service – means a “separation from service” with the Company and its Affiliates within the meaning of Code section 409A.

401(k) Plan – means the Microsoft Corporation Savings Plus 401(k) Plan.

4.Participation.

4.1An Eligible Employee becomes an active Participant in the Plan on the date he first enrolls in the Plan by electing to defer all or any portion of his Eligible Income.  An Eligible Employee may enroll in the Plan during Open Enrollment in accordance with Section 5.1(b)(i) or pursuant to Section 5.1(c).  A Newly Hired Eligible Employee may enroll before his Hire Date in accordance with 5.1(b)(ii).

4.2An Eligible Employee who has been an active Participant under the Plan will cease to be a Participant on the date his Account is fully distributed.

5.Participant Accounts.

5.1Elections to Defer Eligible Income.

(a)Initial Deferral Election.  An Eligible Employee may make an irrevocable election to defer the following types of Eligible Income in one (1) percent increments up to the specified maximum percentages:

(i)An Eligible Employee may elect to defer up to 75% of his Annual Base Salary.

(ii)An Eligible Employee may elect to defer up to 100% of a Annual Bonus.

(iii)An Eligible Employee may elect to defer up to 90% of New Hire Enrollment Compensation.

Eligible Employees are not permitted to defer gains on the exercise of a stock option under the Plan after December 31, 2004.

(b)Time and Manner of Making an Initial Election.

(i)An Eligible Employee may make an election to defer one or more types of Regular Enrollment Compensation during an Open Enrollment period that occurs in the Plan Year preceding the Plan Year in which the Regular Enrollment Compensation begins to be earned.  A deferral election shall be made in accordance with procedures established by the Plan Administrator.  An Employee’s election during such an Open Enrollment period will not be given effect if the Employee ceases to be an Eligible Employee by the last day of the month in which the Open Enrollment period occurs.

(ii)A Newly Hired Eligible Employee may make an election to defer one or more types of New Hire Enrollment Compensation in accordance with procedures established by the Plan Administrator, provided such election occurs before his Hire Date and such election shall only apply to amounts earned after the election is filed.  A Newly Hired Eligible Employee may make an election to defer Regular Enrollment Compensation during an Open Enrollment period that follows or coincides with his Hire Date.

(c)Alternative Election Deadlines.  Notwithstanding the rules in subsection (b), if the Plan Administrator, in its sole discretion, determines that:

(i)Eligible Income constitutes Performance-Based Compensation that is based on services performed over a performance period of at least twelve (12) months, the Plan Administrator may establish procedures, including an Open Enrollment period, under which an Eligible Employee may elect to defer such Performance-Based Compensation, but such election must be made no later than six (6) months before the end of the performance period; or

(ii)Eligible Income constitutes Fiscal Year Compensation, the Plan Administrator may establish procedures, including an Open Enrollment period, under which an Eligible Employee may elect to defer such Fiscal Year Compensation, but such election must be made no later than the last day of the Company’s fiscal year immediately preceding the first fiscal year in which services are performed related to such Eligible Income.

An Employee’s election under this Section will not be given effect if the Employee ceases to be an Eligible Employee by the deadline stated above for making such an election.

(d)Cancellation of Election.  If a Participant becomes Disabled, receives a hardship withdrawal under the 401(k) Plan, or obtains a distribution under Section 6.6 on account of an unforeseeable emergency during a Plan Year, his deferral election for such Plan Year shall be cancelled.

5.2Crediting of Deferrals.  Eligible Income deferred by a Participant under the Plan shall be credited to the Participant’s Account as soon as practicable after the amounts would have otherwise been paid to the Participant.

5.3Vesting.  A Participant shall at all times be one-hundred (100) percent vested in any amounts credited to his Account.

5.4Investments and Earnings.  The Company shall periodically credit gains, losses and earnings to a Participant’s Account, until the full balance of the Account has been distributed.  Amounts shall be credited to a Participant’s Account under this Section based on the results that would have been achieved had amounts credited to the Account been invested as soon as practicable after crediting into the Investment Options selected by the Participant.  The Plan Administrator shall specify procedures to allow Participants to make elections as to the deemed investment of amounts newly credited to their Accounts, as well as the deemed investment of amounts previously credited to their Accounts.  Nothing in this Section or otherwise in the Plan, however, will require the Company to actually invest any amounts in such Investment Options or otherwise.

5.5Employment Taxes.  The Participant’s share of FICA and FUTA taxes owed on Eligible Income the Participant elects to defer shall be deducted from other compensation payable to the Participant.

6.Distribution of Account Balances.

6.1Distribution Form.

(a)A Participant may elect to have amounts deferred under the Plan (and earnings thereon) distributed in a lump sum payment or in annual installments over a period ranging from three (3) to fifteen (15) years.

(b)A Participant must specify the form in which a deferred amount (and earnings thereon) will be distributed at the time of making the initial deferral election under Section 5.1.

(c)Notwithstanding the distribution form elected under subsection (a), if at the time a portion of a Participant’s Account is to be distributed, the portion of the balance to be distributed is less than $50,000, that portion shall be distributed in a lump sum payment at such time, provided that this subsection (c) shall not apply to any amounts deferred under the Plan pursuant to a deferral election that becomes irrevocable on or after June 30, 2011 (and earnings thereon).

(d)Distribution of a Participant’s Account balance shall be made in cash.

6.2Distribution Time.  The rules in this Section 6.2 shall apply to amounts deferred under the Plan, excluding any portion of a Participant’s Account attributable to Pre-2014 Election Amounts.

(a)A Participant may elect to have distribution of a deferred amount (and earnings thereon) commence as of the following dates:

(i)A specified time (a particular month and year); or

(ii)Upon the Participant’s Separation from Service (in which case distributions will commence in the month following Separation from Service).  

(b)A Participant must specify their distribution commencement election at the time of making the initial deferral election under Section 5.1.

(c)If a Participant elects to have a deferred amount distributed as of a specified time, the specified time must be at least twelve (12) months after the date on which the final payment of the deferred amount would have been made to the Participant absent deferral.

6.3Distribution of Pre-2014 Election Amounts Upon Separation from Service. The rules in this Section 6.3 shall only apply to Pre-2014 Election Amounts.

(a)If a Participant reaches Retirement Age prior to having a Separation from Service, the distribution of a Pre-2014 Election Amount will commence as follows:

(i)If the Participant elected commencement upon Retirement, the distribution will commence in the month following Retirement.

(ii)If the Participant elected commencement upon a specified time, the distribution will commence in the specified month and year.

(b)Notwithstanding a Participant’s elections with respect to Pre-2014 Election Amounts, (i) if a ParticipantSeparates from Service prior to reaching Retirement Age, the portion of his Account balance attributable to Pre-2014 Election Amounts shall be distributed in an immediate lump sum payment in the month following the Separation from Service, and (ii) if a Participant becomes Disabled prior to attaining Retirement Age while employed with the Company or an Affiliate, the portion of his Account balance attributable to Pre-2014 Election Amounts shall be distributed in an immediate lump sum payment in the month following the date the Participant becomes Disabled.

6.4Key Employee Delay.  Except as otherwise permitted under IRS guidance, if a distribution is to be made upon the Separation from Service of a Key Employee, distribution may not be made before the date which is six months after the date of the Key Employee’s Separation from Service (or, if earlier, the date of death of the Key Employee).  Any payments that would otherwise be made during this period of delay shall be paid in accordance with the elected distribution method and the terms of the Plan in the seventh month following Separation from Service (or, if earlier, following the Key Employee’s death in accordance with Sections 6.5(a) and (b) below).

6.5Distributions Upon Death.  

(a)Notwithstanding a Participant’s elections with respect to Pre-2014 Election Amounts, if a Participant dies prior to attaining Retirement Age while employed with the Company or an Affiliate, the portion of his Account balance attributable to the Pre-2014 Election Amounts shall be distributed to the Participant’s beneficiary in an immediate single lump sum payment in the month following the date of the Participant’s death.

(b)Notwithstanding a Participant’s elections under Sections 6.1 and 6.2, if a Participant dies, his Account balance, excluding any portion attributable to Pre-2014 Election Amounts, shall be distributed to the Participant’s beneficiary in a single lump sum payment on the date six months after the date of the Participant’s death.

(c)A Participant shall designate his beneficiary prior to death in accordance with procedures established by the Plan Administrator.  If a Participant has not properly designated a beneficiary or if no designated beneficiary is living on the date of distribution, such amount shall be distributed to the Participant’s beneficiary designated under the 401(k) Plan, or if no designated beneficiary under the 401(k) Plan is living, in accordance with the default provisions under the 401(k) Plan.

(d)For purposes of determining the proper death beneficiary under this Plan, this Plan shall not be interpreted as preempting applicable state law regarding the ownership rights of Accounts upon a Participant’s death.  For example, although this Plan states that upon a Participant’s death, Account balances will be paid to his beneficiary, the personal representative will be obligated to pay any benefits owed to a spouse or otherwise as a result of any applicable community property laws.

6.6Withdrawals for Unforeseeable Emergency.  A Participant may withdraw all or any portion of his Account balance for an Unforeseeable Emergency.  The amounts distributed with respect to an Unforeseeable Emergency may not exceed the amounts necessary to satisfy such Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship) or by cessation of deferrals under the Plan.  “Unforeseeable Emergency” means for this purpose a severe financial hardship to a Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

Except as otherwise permitted under IRS guidance, a Participant shall be required to take any available hardship withdrawals from the 401(k) Plan before being eligible to receive a withdrawal under this section.

6.7Changes in Time or Form of Distribution.  To the extent permitted in accordance with procedures established by the Plan Administrator, a Participant may make one or more subsequent elections to change the time or form of a distribution to be made as of a specified time or upon the occurrence of a distributable event for a deferred amount, but such an election will be effective only if the following conditions are satisfied:

(a)The election may not take effect until at least twelve (12) months after the date on which the election is made;

(b)A distribution may not be made earlier than at least five (5) years from the date the distribution would have otherwise been made;

(c)In the case of an election to change the time or form of a distribution payable as of a specified time, the election must be made at least twelve (12) months before the date of the first scheduled distribution; and

(d)The election may not result in an impermissible acceleration of payment prohibited under Code section 409A.

6.8Effect of Taxation.  If a portion of the Participant’s Account balance is includible in income under Code section 409A, such portion shall be distributed immediately to the Participant.

6.9Payment of Taxes.  If state, local, or foreign tax obligations arise from participation in the Plan that apply to an amount deferred under the Plan before such amount is paid or made available to the Participant (the “Taxes”), the Company shall pay a portion of such deferred amount by distribution (a) to the Participant in the form of withholding pursuant to provisions of applicable state, local, or foreign law; or (b) directly to the Participant.  In no event shall the total payment under this Section 6.9 exceed the aggregate amount of the Taxes, and the income tax withholding related to such Taxes.

6.10Settlement of Bona Fide Dispute.  Subject to certain presumptions under Code section 409A, if an arm’s length, bona fide dispute between a Participant and the Company arises as to the Participant’s right to an amount deferred under the Plan, the payment of the deferred amount as part of a settlement of such dispute shall be distributed immediately to the Participant.

6.11Offset for Obligations to Company.  If the Participant has any debt, obligation or other liability representing an amount owing to the Company (the “Debt”), incurred in the ordinary course of his employment relationship, the Company shall offset the Debt against the Participant’s Account balance.  The Company shall reduce the Participant’s Account balance in satisfaction of the Debt at the same time and in the same amount as the Debt otherwise would have been due and collected from the Participant; provided however, in no event shall the amount of such offset in any of the Company’s taxable years exceed $5,000.  

6.122005 Deferred Compensation.  Except as provided in Appendix C, Sections 6.1-6.11 shall govern the distribution of compensation earned and deferred under the Plan during the 2005 Plan Year.

6.13Pre-2005 Deferrals.  Notwithstanding the foregoing, Appendix B governs the distribution of amounts that were earned and vested (within the meaning of Code section 409A and regulations thereunder) under the Plan prior to 2005 (and earnings thereon) and are exempt from the requirements of Code section 409A.

7.Administration.

7.1General Administration.  The Plan Administrator shall be responsible for the operation and administration of the Plan and for carrying out the provisions hereof.  The Plan Administrator shall have the full authority and discretion to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions, including interpretations of this Plan, as may arise in connection with this Plan.  Except as otherwise provided in Section 7.2, any such action taken by the Plan Administrator shall be final and conclusive on any party.  To the extent the Plan Administrator has been granted discretionary authority under the Plan, the Plan Administrator’s prior exercise of such authority shall not obligate it to exercise its authority in a like fashion thereafter.  The Plan Administrator shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Company with respect to the Plan.  The Plan Administrator may, from time to time, employ agents and delegate to such agents, including other employees of the Company, such administrative duties as it sees fit.

7.2Claims for Benefits.

(a)Filing a Claim.  A Participant or his authorized representative may file a claim for benefits under the Plan.  Any claim must be in writing and submitted to the Senior HR Officer at such address as may be specified from time to time.  Claimants will be notified in writing of approved claims, which will be processed as claimed.  A claim is considered approved only if its approval is communicated in writing to a claimant.

(b)Denial of Claim.  In the case of the denial of a claim respecting benefits paid or payable with respect to a Participant, a written notice will be furnished to the claimant within 90 days of the date on which the claim is received by the Senior HR Officer.  If special circumstances (such as for a hearing) require a longer period, the claimant will be notified in writing, prior to the expiration of the 90-day period, of the reasons for an extension of time; provided, however, that no extensions will be permitted beyond 90 days after the expiration of the initial 90-day period.

(c)Reasons for Denial.  A denial or partial denial of a claim will be dated and signed by the Senior HR Officer and will clearly set forth:

(i)the specific reason or reasons for the denial;

(ii)specific reference to pertinent Plan provisions on which the denial is based;

(iii)a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(iv)an explanation of the procedure for review of the denied or partially denied claim set forth below, including the claimant’s right to bring a civil action under ERISA section 502(a) following an adverse benefit determination on review.

(d)Review of Denial.  Upon denial of a claim, in whole or in part, a claimant or his duly authorized representative will have the right to submit a written request to the Senior HR Officer for a full and fair review of the denied claim by filing a written notice of appeal with the Senior HR Officer within 60 days of the receipt by the claimant of written notice of the denial of the claim.  A claimant or the claimant’s authorized representative will have, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits and may submit issues and comments in writing.  The review will take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

If the claimant fails to file a request for review within 60 days of the denial notification, the claim will be deemed abandoned and the claimant precluded from reasserting it.  If the claimant does file a request for review, his request must include a description of the issues and evidence he deems relevant.  Failure to raise issues or present evidence on review will preclude those issues or evidence from being presented in any subsequent proceeding or judicial review of the claim.

(e)Decision Upon Review.  The Senior HR Officer will provide a prompt written decision on review.  If the claim is denied on review, the decision shall set forth:

(i)the specific reason or reasons for the adverse determination;

(ii)specific reference to pertinent Plan provisions on which the adverse determination is based;

(iii)a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits; and

(iv)a statement describing any voluntary appeal procedures offered by the Plan and the claimant’s right to obtain the information about such procedures, as well as a statement of the claimant’s right to bring an action under ERISA section 502(a).

A decision will be rendered no more than 60 days after the Senior HR Officer’s receipt of the request for review, except that such period may be extended for an additional 60 days if the Senior HR Officer determines that special circumstances (such as for a hearing) require such extension.  If an extension of time is required, written notice of the extension will be furnished to the claimant before the end of the initial 60-day period.

(f)Finality of Determinations; Exhaustion of Remedies.  To the extent permitted by law, decisions reached under the claims procedures set forth in this Section shall be final and binding on all parties. No legal action for benefits under the Plan shall be brought unless and until the claimant has exhausted his remedies under this Section. In any such legal action, the claimant may only present evidence and theories which the claimant presented during the claims procedure. Any claims which the claimant does not in good faith pursue through the review stage of the procedure shall be treated as having been irrevocably waived. Judicial review of a claimant’s denied claim shall be limited to a determination of whether the denial was an abuse of discretion based on the evidence and theories the claimant presented during the claims procedure. Any suit or legal action initiated by a claimant under the Plan must be brought by the claimant no later than one year following a final decision on the claim for benefits by the Senior HR Officer.  The one-year limitation on suits for benefits will apply in any forum where a claimant initiates such suit or legal action.

(g)Disability Claims.  Claims for disability benefits shall be determined under the DOL Regulation section 2560.503-1 which is hereby incorporated by reference.

8.Amendment and Termination.

8.1Amendment or Termination.  The Company reserves the right to amend or terminate the Plan when, in the sole discretion of the Company, such amendment or termination is advisable, pursuant to a resolution or other action taken by the Plan Administrator.

Notwithstanding the foregoing, no amendment of the Plan shall apply to amounts that were earned and vested (within the meaning of Code section 409A and regulations thereunder) under the Plan prior to 2005, unless the amendment specifically provides that it applies to such amounts.  The purpose of this restriction is to prevent a Plan amendment from resulting in an inadvertent “material modification” to amounts that are “grandfathered” and exempt from the requirements of Code section 409A.

8.2Effect of Amendment or Termination.  No amendment or termination of the Plan shall decrease the amounts credited to a Participant’s Account as of such amendment or termination.  Upon termination of the Plan, Participants’ Account balances shall be distributed in accordance with the terms of Section 6,unless the Company determines in its sole discretion that all such amounts shall be distributed upon termination in accordance with the requirements under Code section 409A.

9.General Provisions.

9.1Rights Unsecured.  The right of a Participant or his beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of the Company, and neither the Participant nor his beneficiary shall have any rights in or against any amount credited to any Account or any other assets of the Company.  The Plan at all times shall be considered entirely unfunded for tax purposes.  Any funds set aside by the Company for the purpose of meeting its obligations under the Plan, including any amounts held by a trustee, shall continue for all purposes to be part of the general assets of the Company and shall be available to its general creditors in the event of the Company’s bankruptcy or insolvency.  The Company’s obligation under this Plan shall be that of an unfunded and unsecured promise to pay money in the future.

9.2No Right to Eligible Income.  Nothing in this Plan shall be construed to give any Eligible Employee any right to be granted Eligible Income or any other type of compensation.

9.3No Enlargement of Rights.  No Participant or beneficiary shall have any right to receive a distribution under the Plan except in accordance with the terms of the Plan.  Establishment of the Plan shall not be construed to give any Participant the right to continue to be employed by or provide services to the Company or its affiliates or to employment that is not terminable at will.

9.4No Guarantee of Benefits.  Nothing contained in the Plan shall constitute a guarantee by the Company or any other person or entity that the assets of the Company will be sufficient to pay any benefits hereunder.

9.5Nonalienation of Benefits.  This Plan inures to the benefit of and is binding upon the parties hereto and their successors, heirs and assigns; provided, however, that the amounts credited to a Participant’s Account are not, except as provided in Sections 9.6 and 6.11, subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to any benefits payable hereunder, will be null and void and not binding on the Plan or the Company.

9.6Taxes.  In addition to its rights under section 5.5, the Company or other payor may withhold from a benefit payment under the Plan or a Participant’s wages any federal, state, or local taxes required by law to be withheld with respect to a payment or accrual under the Plan, and shall report such payments and other Plan-related information to the appropriate governmental agencies as required under applicable law.

9.7Participant’s Cooperation.  The Participant shall cooperate with the Company by furnishing any and all information requested by the Plan Administrator in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Plan Administrator may deem necessary and taking such other actions as may be requested by the Plan Administrator. If the Participant refuses to cooperate, the Company shall have no further obligation to the Participant under the Plan.

9.8Incapacity of Recipient.  If any person entitled to a distribution under the Plan is deemed by the Plan Administrator to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until a claim for such payment shall have been made by a duly appointed guardian or other legal representative of such person, the Plan Administrator may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person.  Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company and the Plan with respect to the payment.

9.9Legally Binding.  In the event of any consolidation, merger, acquisition or reorganization, the obligations of the Company under this Plan shall continue and be binding on the Company and its successors or assigns.  The rights, privileges, benefits and obligations under the Plan are intended to be legal obligations of the Company and binding upon the Company, its successors and assigns.

9.10Unclaimed Benefits.  Each Participant shall keep the Plan Administrator informed of his current address and the current address of his designated beneficiary.  The Plan Administrator shall not be obligated to search for the whereabouts of any person if the location of a person is not made known to the Plan Administrator.

9.11Severability.  In the event any provision of the Plan shall be held invalid or illegal for any reason, any illegality or invalidity shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced as if the illegal or invalid provision had never been inserted.

9.12Words and Headings.  Words in the masculine gender shall include the feminine and the singular shall include the plural, and vice versa, unless qualified by the context.  Any headings used herein are included for ease of reference only, and are not to be construed so as to alter the terms hereof.

9.13Applicable Law and Venue.  To the extent not preempted by federal law, the Plan shall be governed by the laws of the State of Washington.  In the event the Company or any Participant (or beneficiary) initiates litigation related to this Plan, the venue for such action will be in King County, Washington.

9.14Waiver of Breach.  The waiver by the Company of any breach of any provision of the Plan by the Participant shall not operate or be construed as a waiver of any subsequent breach by the Participant.

9.15Notice.  Any notice or filing required or permitted to be given to the Plan Administrator under the Plan shall be sufficient if in writing and hand-delivered, or sent by first class mail to the principal office of the Company, directed to the attention of the Plan Administrator.  Such notice shall be deemed given as of the date of delivery, or, if delivery is made by mail, as of the date shown on the postmark.

9.16Attorneys’ Fees and Costs.  In the event that a dispute regarding benefits arises between the Company or Plan Administrator and a Participant (or beneficiary) and such dispute is resolved through arbitration or litigation in court, the prevailing party(ies) shall be entitled to their reasonable attorneys’ fees and costs incurred in such action.

The Company has caused this restated Plan to be duly adopted and executed on this _____ day of _________________, 2015.

_________________________________

Kathleen Hogan

Executive Vice President, Human Resources

APPENDIX A

DESIGNATED SUBSIDIARIES

(As of May 15, 2015)

1654:  MOL Corporation

1693:  Vexcel Corporation

1548:  Microsoft Online, Inc.

1888:  Microsoft Payments, Inc.

1899:  Microsoft Open Technologies, Inc.

1988:  Microsoft Technology Licensing

APPENDIX B

GRANDFATHERED AMOUNTS

Distribution of amounts that were earned and vested (within the meaning of Code section 409A and regulations thereunder) under the Plan prior to 2005 (and earnings thereon) and are exempt from the requirements of Code section 409A shall be made in accordance with the Plan terms as in effect on December 31, 2004 and as summarized in this Appendix B.

B.1Timing.  As soon as practicable following the final day of the Deferral Period for a specific deferral, the Company will distribute to the Participant (or in the case of the Participant’s death, his estate), all proceeds in the Participant’s Deferred Bonus Account and will issue to the Participant (or in the event of the Participant’s death, the personal representative or beneficiaries of his estate) shares of Stock credited to the Participant’s Deferred Stock Option Gain Account, that are attributed to that deferral.  With respect to a specific deferral, the final day of the Deferral Period shall be the earliest of the last day of the Deferral Period selected by the Participant or the date he has a Termination of Employment.  Upon Termination of Employment, a Participant will have the same rights with respect to an unexercised Option that he would have if he had not elected to defer the Stock Option Gain relating to that Option.  The portion of a Participant’s Accounts that can be attributed to a specific deferral shall be determined in the sole discretion of the Plan Administrator.

B.2Extension of Deferral Period.  On a one-time basis with respect to each deferral, a Participant may elect in accordance with procedures established by the Plan Administrator to extend the Deferral Period for a Bonus or Stock Option Gain for an additional five (5), seven (7), or ten (10) years, provided that such extension is elected in the calendar year prior, and at least six (6) months prior, to the expiration of the initial Deferral Period and the Participant is an Eligible Executive at the time he makes the election to extend the Deferral Period.

B.3Disability.  In the event of a Participant’s Disability and upon application by such Participant, the Plan Administrator may determine that payment of all, or part, of such Participant’s Accounts shall be made in a different manner, or on an earlier date than the time or times specified in Section B.1 above, but only to the extent determined by the Plan Administrator to be reasonably required to satisfy the Participant’s need.

B.4Investment of Accounts.  Notwithstanding Section 5.4, a Participant shall not have the right to select among Investment Options for amounts credited to the Participant’s Deferred Stock Option Gain Account.  Such amounts shall be treated as if invested in Stock at all times.  

B.5Definitions.  For purposes of this Appendix B, the following terms shall have the meanings indicated below:

Bonus means the amount payable by the Company to an Eligible Employee as an individual performance bonus, executive bonus or any other bonus/incentive award that is approved by the Plan Administrator for deferral under the Plan.

Deferral Period means with respect to a specific deferral of a Bonus or Stock Option Gain, the period of five (5), seven (7), or ten (10) years from the date on which the corresponding Bonus would otherwise have been paid or the date the Option was scheduled to expire had it not been exercised; provided that, in the event of the Participant’s Termination of Employment, the Deferral Period shall end on the date of Termination of Employment.

Deferred Bonus Account means a bookkeeping account established for Bonuses deferred under the Plan.

Deferred Stock Option Gain Account means a bookkeeping account established for Stock Option Gains deferred under the Plan.

Disability means any long-term disability as defined under the Company’s long-term disability plan.  The Plan Administrator, in its complete and sole discretion, shall determine a Participant’s Disability.  The Plan Administrator may require that the Participant submit to an examination on an annual basis, at the expense of the Company, by a competent physician or medical clinic selected by the Plan Administrator to assist in the determination of Disability.  On the basis of such medical evidence, the determination of the Plan Administrator as to whether or not a condition of Disability exists or continues shall be conclusive.

Eligible Executive means a full-time employee of the Company who is (i) an elected officer of the Company, (ii) at the level of Vice President or above, (iii) at Level 16 or above on the Company’s salary range, and (iv) working within the United States of America.  In addition, the Plan Administrator may, in his or her discretion, extend coverage to persons who are selected by the Plan Administrator and who either (y) meet all of the foregoing requirements except that they are working outside of the United States of America, or (z) are officers of a subsidiary of the Company.

Mature Shares means shares of the Company’s Stock delivered by a Participant in payment of the exercise price of an Option; provided that Mature Shares shall not include any shares of the Company’s Stock that may be received upon exercise of such Option, nor Stock that the Participant purchased pursuant to a prior stock option exercise which occurred less than six months prior to the exercise of such Option.

Option shall mean one or more non-qualified stock options, issued to a Participant under any stock option plan of the Company, with respect to which the Participant has elected to defer the Stock Option Gain.  Option shall not include any rights under the Company’s Employee Stock Purchase Plan.

Stock - means Microsoft Corporation common stock.

Stock Option Gain means the number of shares underlying an Option minus the number of Mature Shares required to pay the exercise price for those shares.  For example, if a Participant elects to defer the gain on 100 shares and is required to deliver 10 shares of Stock as payment for the exercise price on the 100 shares, the Stock Option Gain will be 90 shares.

Termination of Employment means the termination of the Participant’s employment relationship with the Company for any reason including, without limitation, involuntary termination with or without cause, voluntary termination, disability, death, or retirement.

APPENDIX C

2005 DEFERRED COMPENSATION

This Appendix C sets forth the special rules applicable to compensation eligible for deferral under the Plan from January 1, 2005 through December 31, 2005.  Unless otherwise defined herein, capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Plan and Appendix B.

C-1.2005 Initial Deferral Elections.  Notwithstanding anything in Section 5.1 of the Plan to the contrary and only with respect to compensation earned during the 2005 Plan Year (“2005 Income”), an Eligible Employee may make an irrevocable election to defer up to 100% of a Bonus in ten (10) percent increments.  Eligible Employees are not permitted to defer gains on the exercise of a stock option under the Plan after December 31, 2004.

C-2.Time of Distribution.  The Company will distribute to the Participant (or in the case of the Participant’s death, his estate) all proceeds in the Participant’s Deferred Bonus Account that are attributed to a specific deferral upon the earlier of:  (1) the last day of the Deferral Period elected by the Participant; or (2) the date of the Participant's Separation from Service; provided that, if a distribution is to be made upon the Separation from Service of a Key Employee, such distribution is subject to the six month delay set forth in Section 6.4 of the Plan.  

For purposes of this Appendix C, “Deferral Period” means with respect to a specific deferral of a Bonus, the period, as elected by the Participant at the time of the deferral election, of five (5), seven (7), or ten (10) years from the date on which the corresponding Bonus would otherwise have been paid.

C-3.Changes in Time or Form of Distribution.  To the extent the Company allows a Participant to make a subsequent election to change the time or form of distribution of 2005 Income deferred under the Plan, such election will be effective only if the conditions set forth in Section 6.7 of the Plan are satisfied.

C-4.General Application of the Plan.  Other than as set forth above, the terms of the Plan in all other respects and in compliance with Code section 409A shall govern the distribution of 2005 Income deferred under the Plan from January 1, 2005 through December 31, 2005.

EX-12

Exhibit 12

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

(In millions, except ratios)
Year Ended June 30,		2018		2017	(c)		2016	(c)		2015			2014
Earnings (a)
Earnings from continuing operations before income taxes	$	36,474	$	29,901		$	25,639		$	18,507		$	27,820
Add: Fixed charges		2,807		2,324			1,325			867			674
Add: Cash distributions from equity method investments		8		12			12			1			54
Subtract: Gain (Loss) from equity method investments		31		(14	)		(25	)		(78	)		(152	)
Total Earnings	$	39,258	$	32,251		$	27,001		$	19,453		$	28,700
Fixed Charges (b)
Interest expense	$	2,674	$	2,141		$	1,185		$	756		$	577
Capitalized debt related expenses		59		81			58			25			20
Interest component of rental expense		74		102			82			86			77
Total Fixed Charges	$	2,807	$	2,324		$	1,325		$	867		$	674
Ratio of Earnings to Fixed Charges		14		14			20			22			43

(a) Earnings represent earnings from continuing operations before income taxes and before income (losses) from equity method investments plus: (1) fixed charges; and (2) cash distributions from equity method investments.

(b) Fixed charges include: (1) interest expense; (2) capitalized debt issuance costs; and (3) the portion of operating rental expense which management believes is representative of the interest component of rental expense.

(c) Reflects the impact of the adoption of the new accounting standard in fiscal year 2018 related to revenue recognition. Refer to Note 1 – Accounting Policies of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

EX-21

Exhibit 21

SUBSIDIARIES OF REGISTRANT

The following is a list of subsidiaries of the company as of June 30, 2018, omitting subsidiaries which, considered in the aggregate, would not constitute a significant subsidiary.

Name	Where Incorporated
Microsoft Ireland Research	Ireland
Microsoft Global Finance	Ireland
Microsoft Ireland Operations Limited	Ireland
Microsoft Online, Inc.	United States
Microsoft Operations Pte Ltd	Singapore
Microsoft Regional Sales Corporation	United States
LinkedIn Corporation	United States
LinkedIn Ireland Unlimited Company	Ireland

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-109185, 333-118764, 333-52852, 333-132100, 333-161516, 333-75243, 333-185757, and 333-221833 on Form S-8 and Registration Statement No. 333-207652 on Form S-3 of our reports dated August 3, 2018, relating to the consolidated financial statements and the related notes of Microsoft Corporation and subsidiaries (the “Company”) (which report expresses an unqualified opinion and includes an explanatory paragraph related to the Company’s change in method of accounting for revenue from contracts with customers and for accounting for leases in fiscal year 2018 due to the adoption of the new revenue standard and new lease standard, respectively), and the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Microsoft Corporation for the year ended June 30, 2018.

/s/ DELOITTE & TOUCHE LLP

Seattle, Washington

August 3, 2018

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Satya Nadella, certify that:

1. I have reviewed this annual report on Form 10-K of Microsoft Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ SATYA NADELLA

Satya Nadella

Chief Executive Officer

August 3, 2018

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Amy E. Hood, certify that:

1. I have reviewed this annual report on Form 10-K of Microsoft Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ AMY E. HOOD

Amy E. Hood

Executive Vice President and

Chief Financial Officer

August 3, 2018

EX-32.1

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Annual Report of Microsoft Corporation, a Washington corporation (the “Company”), on Form 10-K for the year ended June 30, 2018, as filed with the Securities and Exchange Commission (the “Report”), Satya Nadella, Chief Executive Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ SATYA NADELLA

Satya Nadella

Chief Executive Officer

August 3, 2018

[A signed original of this written statement required by Section 906 has been provided to Microsoft Corporation and will be retained by Microsoft Corporation and furnished to the Securities and Exchange Commission or its staff upon request.]

EX-32.2

Exhibit 32.2

CERTIFICATIONS PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Annual Report of Microsoft Corporation, a Washington corporation (the “Company”), on Form 10-K for the year ended June 30, 2018, as filed with the Securities and Exchange Commission (the “Report”), Amy E. Hood, Chief Financial Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to her knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ AMY E. HOOD

Amy E. Hood

Executive Vice President and

Chief Financial Officer

August 3, 2018

[A signed original of this written statement required by Section 906 has been provided to Microsoft Corporation and will be retained by Microsoft Corporation and furnished to the Securities and Exchange Commission or its staff upon request.]

XML

Document and Entity Information - USD ($) $ / shares in Units, $ in Billions	12 Months Ended
	Jun. 30, 2018	Jul. 31, 2018	Dec. 31, 2017
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Trading Symbol	MSFT
Entity Registrant Name	MICROSOFT CORPORATION
Entity Central Index Key	0000789019
Current Fiscal Year End Date	--06-30
Entity Well-known Seasoned Issuer	Yes
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Par Value Per Share	$ 0.00000625
Entity Common Stock, Shares Outstanding		7,668,217,316
Entity Public Float			$ 650.1
I.R.S. Employer Identification No.	911144442

XML

INCOME STATEMENTS - USD ($) shares in Millions, $ in Millions	12 Months Ended
	Jun. 30, 2018		Jun. 30, 2017		Jun. 30, 2016
Revenue	$ 110,360		$ 96,571	[1]	$ 91,154
Cost of revenue	38,353		34,261		32,780
Gross margin	72,007		62,310	[1]	58,374
Research and development	14,726		13,037		11,988
Sales and marketing	17,469		15,461		14,635
General and administrative	4,754		4,481		4,563
Impairment and restructuring	0		306		1,110
Operating income	35,058		29,025	[1],[2]	26,078
Other income (expense), net	1,416		876		(439)
Income before income taxes	36,474		29,901		25,639
Provision for income taxes	19,903		4,412		5,100
Net income	$ 16,571	[3]	$ 25,489	[1],[2]	$ 20,539
Earnings per share:
Basic	$ 2.15		$ 3.29	[1]	$ 2.59
Diluted	$ 2.13	[4]	$ 3.25	[1],[2]	$ 2.56
Weighted average shares outstanding:
Basic	7,700		7,746		7,925
Diluted	7,794		7,832		8,013
Cash dividends declared per common share	$ 1.68		$ 1.56		$ 1.44
Product
Revenue	$ 64,497		$ 63,811		$ 67,336
Cost of revenue	15,420		15,175		17,880
Service and Other
Revenue	45,863		32,760		23,818
Cost of revenue	$ 22,933		$ 19,086		$ 14,900

[1] On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

[2] Includes $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan, which decreased operating income, net income, and diluted EPS by $306 million, $243 million, and $0.04, respectively.

[3] Reflects the net charge (benefit) related to the TCJA of $13.8 billion for the second quarter, $(104) million for the fourth quarter, and $13.7 billion for fiscal year 2018.

[4] Reflects the net charge (benefit) related to the TCJA, which decreased (increased) diluted EPS $1.78 for the second quarter, $(0.01) for the fourth quarter, and $1.75 for fiscal year 2018.

XML

COMPREHENSIVE INCOME STATEMENTS - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018		Jun. 30, 2017		Jun. 30, 2016
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 16,571	[1]	$ 25,489	[2],[3]	$ 20,539
Other comprehensive income (loss), net of tax:
Net change related to derivatives	39		(218)		(238)
Net change related to investments	(2,717)		(1,116)		(228)
Translation adjustments and other	(178)		167		(262)
Other comprehensive loss	(2,856)		(1,167)		(728)
Comprehensive income	$ 13,715		$ 24,322		$ 19,811

[1] Reflects the net charge (benefit) related to the TCJA of $13.8 billion for the second quarter, $(104) million for the fourth quarter, and $13.7 billion for fiscal year 2018.

[2] Includes $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan, which decreased operating income, net income, and diluted EPS by $306 million, $243 million, and $0.04, respectively.

[3] On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

XML

BALANCE SHEETS - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Current assets:
Cash and cash equivalents	$ 11,946	$ 7,663
Short-term investments	121,822	125,318
Total cash, cash equivalents, and short-term investments	133,768	132,981
Accounts receivable, net of allowance for doubtful accounts of $377 and $345	26,481	22,431
Inventories	2,662	2,181
Other	6,751	5,103
Total current assets	169,662	162,696
Property and equipment, net of accumulated depreciation of $29,223 and $24,179	29,460	23,734
Operating lease right-of-use assets	6,686	6,555
Equity and other investments	1,862	6,023
Goodwill	35,683	35,122
Intangible assets, net	8,053	10,106
Other long-term assets	7,442	6,076
Total assets	258,848	250,312
Current liabilities:
Accounts payable	8,617	7,390
Short-term debt	0	9,072
Current portion of long-term debt	3,998	1,049
Accrued compensation	6,103	5,819
Short-term income taxes	2,121	718
Short-term unearned revenue	28,905	24,013
Other	8,744	7,684
Total current liabilities	58,488	55,745
Long-term debt	72,242	76,073
Long-term income taxes	30,265	13,485
Long-term unearned revenue	3,815	2,643
Deferred income taxes	541	5,734
Operating lease liabilities	5,568	5,372
Other long-term liabilities	5,211	3,549
Total liabilities	176,130	162,601
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 7,677 and 7,708	71,223	69,315
Retained earnings	13,682	17,769
Accumulated other comprehensive income (loss)	(2,187)	627
Total stockholders’ equity	82,718	87,711
Total liabilities and stockholders' equity	$ 258,848	$ 250,312

XML

BALANCE SHEETS (Parenthetical) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Statement Of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 377	$ 345
Property and equipment, accumulated depreciation	$ 29,223	$ 24,179
Common stock, shares authorized	24,000,000,000	24,000,000,000
Common stock, outstanding	7,677,000,000	7,708,000,000

XML

CASH FLOWS STATEMENTS - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018		Jun. 30, 2017		Jun. 30, 2016
Operations
Net income	$ 16,571	[1]	$ 25,489	[2],[3]	$ 20,539
Adjustments to reconcile net income to net cash from operations:
Asset impairments	0		0		630
Depreciation, amortization, and other	10,261		8,778		6,622
Stock-based compensation expense	3,940		3,266		2,668
Net recognized gains on investments and derivatives	(2,212)		(2,073)		(223)
Deferred income taxes	(5,143)		(829)		2,479
Changes in operating assets and liabilities:
Accounts receivable	(3,862)		(1,216)		562
Inventories	(465)		50		600
Other current assets	(952)		1,028		(1,212)
Other long-term assets	(285)		(917)		(1,110)
Accounts payable	1,148		81		88
Unearned revenue	5,922		3,820		2,565
Income taxes	18,183		1,792		(298)
Other current liabilities	798		356		(179)
Other long-term liabilities	(20)		(118)		(406)
Net cash from operations	43,884		39,507		33,325
Financing
Proceeds from issuance (repayments) of short-term debt, maturities of 90 days or less, net	(7,324)		(4,963)		7,195
Proceeds from issuance of debt	7,183		44,344		13,884
Repayments of debt	(10,060)		(7,922)		(2,796)
Common stock issued	1,002		772		668
Common stock repurchased	(10,721)		(11,788)		(15,969)
Common stock cash dividends paid	(12,699)		(11,845)		(11,006)
Other, net	(971)		(190)		(369)
Net cash from (used in) financing	(33,590)		8,408		(8,393)
Investing
Additions to property and equipment	(11,632)		(8,129)		(8,343)
Acquisition of companies, net of cash acquired, and purchases of intangible and other assets	(888)		(25,944)		(1,393)
Purchases of investments	(137,380)		(176,905)		(129,758)
Maturities of investments	26,360		28,044		22,054
Sales of investments	117,577		136,350		93,287
Securities lending payable	(98)		(197)		203
Net cash used in investing	(6,061)		(46,781)		(23,950)
Effect of foreign exchange rates on cash and cash equivalents	50		19		(67)
Net change in cash and cash equivalents	4,283		1,153		915
Cash and cash equivalents, beginning of period	7,663		6,510		5,595
Cash and cash equivalents, end of period	$ 11,946		$ 7,663		$ 6,510

[1] Reflects the net charge (benefit) related to the TCJA of $13.8 billion for the second quarter, $(104) million for the fourth quarter, and $13.7 billion for fiscal year 2018.

[2] Includes $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan, which decreased operating income, net income, and diluted EPS by $306 million, $243 million, and $0.04, respectively.

[3] On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

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STOCKHOLDERS' EQUITY STATEMENTS - USD ($) $ in Millions	Total		Common stock and paid-in capital	Retained earnings	Accumulated other comprehensive income (loss)
Balance, beginning of period at Jun. 30, 2015			$ 68,465	$ 16,191	$ 2,522
Common stock issued			668
Net income	$ 20,539			20,539
Other comprehensive loss	(728)				(728)
Common stock cash dividends				(11,329)
Common stock repurchased	(14,800)		(3,689)	(12,283)
Cumulative effect of accounting change				0	0
Stock-based compensation expense			2,668
Other, net			66
Balance, end of period at Jun. 30, 2016	83,090		68,178	13,118	1,794
Common stock issued			772
Net income	25,489	[1],[2]		25,489
Other comprehensive loss	(1,167)				(1,167)
Common stock cash dividends				(12,040)
Common stock repurchased	(10,283)		(2,987)	(8,798)
Cumulative effect of accounting change				0	0
Stock-based compensation expense			3,266
Other, net			86
Balance, end of period at Jun. 30, 2017	87,711		69,315	17,769	627
Common stock issued			1,002
Net income	16,571	[3]		16,571
Other comprehensive loss	(2,856)				(2,856)
Common stock cash dividends				(12,917)
Common stock repurchased	(8,600)		(3,033)	(7,699)
Cumulative effect of accounting change				(42)	42
Stock-based compensation expense			3,940
Other, net			(1)
Balance, end of period at Jun. 30, 2018	$ 82,718		$ 71,223	$ 13,682	$ (2,187)

[1] Includes $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan, which decreased operating income, net income, and diluted EPS by $306 million, $243 million, and $0.04, respectively.

[2] On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

[3] Reflects the net charge (benefit) related to the TCJA of $13.8 billion for the second quarter, $(104) million for the fourth quarter, and $13.7 billion for fiscal year 2018.

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ACCOUNTING POLICIES

12 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

ACCOUNTING POLICIES

NOTE 1 — ACCOUNTING POLICIES

Accounting Principles

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

We have recast certain prior period income tax liabilities as discussed in the Recent Tax Legislation section below. We have also recast prior period securities lending payables to other current liabilities in our consolidated balance sheets to conform to the current period presentation. These items had no impact in our consolidated income statements or net cash from or used in operating, financing, or investing in our consolidated cash flows statements.

Principles of Consolidation

The consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated. Equity investments for which we are able to 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 for 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.

Estimates and Assumptions

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price (“SSP”) of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; product warranties; the fair value of and/or potential impairment of goodwill and intangible assets for our reporting units; product life cycles; useful lives of our tangible and intangible assets; allowances for doubtful accounts; the market value of, and demand for, our inventory; stock-based compensation forfeiture rates; when technological feasibility is achieved for our products; the potential outcome of future tax consequences of events that have been recognized in our consolidated financial statements or tax returns; and determining when investment impairments are other-than-temporary. Actual results and outcomes may differ from management’s estimates and assumptions.

Foreign Currencies

Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income (“OCI”).

Revenue

Product Revenue and Service and Other Revenue

Product revenue includes sales from operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games; and hardware such as PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.

Service and other revenue includes sales from cloud-based solutions that provide customers with software, services, platforms, and content such as Microsoft Office 365, Microsoft Azure, Microsoft Dynamics 365, and Xbox Live; solution support; and consulting services. Service and other revenue also includes sales from online advertising and LinkedIn.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

Nature of Products and Services

Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. In cases where we allocate revenue to software updates, primarily because the updates are provided at no additional charge, revenue is recognized as the updates are provided, which is generally ratably over the estimated life of the related device or license.

Certain volume licensing programs, including Enterprise Agreements, include on-premises licenses combined with Software Assurance (“SA”). SA conveys rights to new software and upgrades released over the contract period and provides support, tools, and training to help customers deploy and use products more efficiently. On-premises licenses are considered distinct performance obligations when sold with SA. Revenue allocated to SA is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits, given that SA comprises distinct performance obligations that are satisfied over time.  

Cloud services, which allow customers to use hosted software over the contract period without taking possession of the software, are provided on either a subscription or consumption basis. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract period. Revenue related to cloud services provided on a consumption basis, such as the amount of storage used in a period, is recognized based on the customer utilization of such resources. When cloud services require a significant level of integration and interdependency with software and the individual components are not considered distinct, all revenue is recognized over the period in which the cloud services are provided.

Revenue from search advertising is recognized when the advertisement appears in the search results or when the action necessary to earn the revenue has been completed. Revenue from consulting services is recognized as services are provided.

Our hardware is generally highly dependent on, and interrelated with, the underlying operating system and cannot function without the operating system. In these cases, the hardware and software license are accounted for as a single performance obligation and revenue is recognized at the point in time when ownership is transferred to resellers or directly to end customers through retail stores and online marketplaces.

Refer to Note 21 – Segment Information and Geographic Data for further information, including revenue by significant product and service offering.

Significant Judgments

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided.

Judgment is required to determine the SSP for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.

In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.  

Due to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, including the exercise pattern of certain benefits across our portfolio of customers.  

Our products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our products and services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Changes to our estimated variable consideration were not material for the periods presented.

Contract Balances  

Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record a receivable related to revenue recognized for multi-year on-premises licenses as we have an unconditional right to invoice and receive payment in the future related to those licenses.

The opening balance of current and long-term accounts receivable, net of allowance for doubtful accounts, was $22.3 billion as of July 1, 2016.

As of June 30, 2018 and 2017, long-term accounts receivable, net of allowance for doubtful accounts, were $1.8 billion and $1.7 billion, respectively, and are included in other long-term assets in our consolidated balance sheets.

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.

Activity in the allowance for doubtful accounts was as follows:

(In millions)
Year Ended June 30,		2018			2017			2016
Balance, beginning of period	$	361		$	409		$	289
Charged to costs and other		134			58			175
Write-offs		(98	)		(106	)		(55	)
Balance, end of period	$	397		$	361		$	409

Allowance for doubtful accounts included in our consolidated balance sheets:

June 30,		2018		2017		2016
Accounts receivable, net of allowance for doubtful accounts	$	377	$	345	$	392
Other long-term assets		20		16		17
Total	$	397	$	361	$	409

Unearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include SA and cloud services. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for consulting services to be performed in the future; LinkedIn subscriptions; Office 365 subscriptions; Xbox Live subscriptions; Windows 10 post-delivery support; Dynamics business solutions; Skype prepaid credits and subscriptions; and other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service.

Refer to Note 15 – Unearned Revenue for further information, including unearned revenue by segment and changes in unearned revenue during the period.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced annually with revenue recognized upfront.

Assets Recognized from Costs to Obtain a Contract with a Customer

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets in our consolidated balance sheets.

We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include our internal sales force compensation program and certain partner sales incentive programs as we have determined annual compensation is commensurate with annual sales activities.

Cost of Revenue

Cost of revenue includes: manufacturing and distribution costs for products sold and programs licensed; operating costs related to product support service centers and product distribution centers; costs incurred to include software on PCs sold by original equipment manufacturers (“OEM”), to drive traffic to our websites, and to acquire online advertising space; costs incurred to support and maintain Internet-based products and services, including datacenter costs and royalties; warranty costs; inventory valuation adjustments; costs associated with the delivery of consulting services; and the amortization of capitalized software development costs. Capitalized software development costs are amortized over the estimated lives of the products.

Product Warranty

We provide for the estimated costs of fulfilling our obligations under 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 the country in which we do business, but generally include parts and labor over a period generally ranging from 90 days 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 reevaluate our estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary.

Research and Development

Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, localization costs incurred to translate software for international markets, and the amortization of purchased software code and services content. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products.

Sales and Marketing

Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs. Advertising costs are expensed as incurred. Advertising expense was $1.6 billion, $1.5 billion, and $1.6 billion in fiscal years 2018, 2017, and 2016, respectively.

Stock-Based Compensation

Compensation cost for stock awards, which include restricted stock units (“RSUs”) and performance stock units (“PSUs”), is measured at the fair value on the grant date and recognized as expense, net of estimated forfeitures, over the related service or performance period. The fair value of stock awards is based on the quoted price of our common stock on the grant date less the present value of expected dividends not received during the vesting period. We measure the fair value of PSUs using a Monte Carlo valuation model. Compensation cost for RSUs is recognized using the straight-line method and for PSUs is recognized using the accelerated method.

Compensation expense for the employee stock purchase plan (“ESPP”) is measured as the discount the employee is entitled to upon purchase and is recognized in the period of purchase.

Income Taxes

Income tax expense includes U.S. and international income taxes, and interest and penalties on uncertain tax positions. Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. Deferred tax assets are reported net of a valuation allowance when it is more likely than not that a tax benefit will not be realized. All deferred income taxes are classified as long-term in our consolidated balance sheets.

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 in active markets. Our Level 1 non-derivative investments primarily include U.S. government securities, common and preferred stock, and 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, credit spreads, foreign exchange rates, and forward and spot prices for currencies. Our Level 2 non-derivative investments consist primarily of corporate notes and bonds, foreign government bonds, mortgage- and asset-backed securities, commercial paper, certificates of deposit, and U.S. agency securities. 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 and liabilities primarily comprise investments in common and preferred stock, and goodwill and intangible assets, when they are recorded at fair value due to an impairment charge. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities.

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.

Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.

Financial Instruments

Investments

We consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. All cash equivalents and short-term investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in market value, excluding other-than-temporary impairments, are reflected in OCI.

Equity and other investments classified as long-term include both debt and equity instruments. Debt and publicly-traded equity securities are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in the market value of available-for-sale securities, excluding other-than-temporary impairments, are reflected in OCI. Common and preferred stock and other investments that are restricted for more than one year or are not publicly traded are recorded at cost or using the equity method.

We lend certain fixed-income and equity securities to increase investment returns. These transactions are accounted for as secured borrowings and the loaned securities continue to be carried as investments in our consolidated balance sheets. Cash and/or security interests are received as collateral for the loaned securities with the amount determined based upon the underlying security lent and the creditworthiness of the borrower. Cash received is recorded as an asset with a corresponding liability.

Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Fair value is calculated based on publicly available market information or other estimates determined by management. We employ a systematic methodology on a quarterly basis that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, the duration and extent to which the fair value is less than cost, and for equity securities, our intent and ability to hold, or plans to sell, the investment. For fixed-income securities, we also evaluate whether we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery. We also consider specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense), net and a new cost basis in the investment is established.

Derivatives

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 derivative instruments designated as fair value hedges, the gains (losses) are recognized in earnings in the periods of change together with the offsetting losses (gains) on the hedged items 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 gains (losses) on the derivatives is initially reported as a component of 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), net.

Inventories

Inventories are stated at average cost, subject to the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. Net realizable value is the estimated selling price less estimated costs of completion, disposal, and transportation. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to cost of revenue.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation, and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: computer software developed or acquired for internal use, three to seven years; computer equipment, two to three years; buildings and improvements, five to 15 years; leasehold improvements, three to 20 years; and furniture and equipment, one to 10 years. Land is not depreciated.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our consolidated balance sheets.  

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Goodwill

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1 for us) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

Intangible Assets

All of our intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of benefit, ranging from one to 20 years. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.

Recent Tax Legislation

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect our business. Refer to Note 13 – Income Taxes for further discussion.

As a result of the TCJA, we have recast certain prior period income tax liabilities in our consolidated balance sheets to conform to the current period presentation. Previously reported balances were impacted as follows:

(In millions)	As Previously Reported		As Adjusted
Balance Sheets				June 30, 2017
Long-term income taxes	$	0	$	13,485
Other long-term liabilities		17,034		3,549

These adjustments had no impact in our consolidated income statements or net cash from or used in operating, financing, or investing in our consolidated cash flows statements.

Recent Accounting Guidance

Recently Adopted Accounting Guidance

Comprehensive Income – Reclassification of Certain Tax Effects

In February 2018, the Financial Accounting Standards Board (“FASB”) issued new guidance to allow a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the TCJA. In the second quarter of fiscal year 2018, we remeasured our deferred taxes related to unrealized gains on our investment balances using the reduced tax rate. As required by GAAP, we recognized the net tax benefit in the provision for income taxes in our consolidated income statements, even though the deferred taxes were initially recognized in AOCI, which resulted in stranded tax effects. We elected to early adopt the standard effective April 1, 2018 and reclassified a $42 million net tax benefit from AOCI to retained earnings in our consolidated balance sheets. Adoption of the standard had no impact to our consolidated income statements or cash flows statements.

Leases

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We are also required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available.

We elected to early adopt the standard effective July 1, 2017 concurrent with our adoption of the new standard related to revenue recognition. We elected the available practical expedients and implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

The standard had a material impact in our consolidated balance sheets, but did not have an impact in our consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. Adoption of the standard required us to restate certain previously reported results, including the recognition of additional ROU assets and lease liabilities for operating leases. Refer to Impacts to Previously Reported Results below for the impact of adoption of the standard in our consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued a new standard related to revenue recognition. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

We elected to early adopt the standard effective July 1, 2017, using the full retrospective method, which required us to restate each prior reporting period presented. We implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

The most significant impact of the standard relates to our accounting for software license revenue. Specifically, for Windows 10, we recognize revenue predominantly at the time of billing and delivery rather than ratably over the life of the related device. For certain multi-year commercial software subscriptions that include both distinct software licenses and SA, we recognize license revenue at the time of contract execution rather than over the subscription period. Due to the complexity of certain of our commercial license subscription contracts, the actual revenue recognition treatment required under the standard depends on contract-specific terms and in some instances may vary from recognition at the time of billing. Revenue recognition related to our hardware, cloud offerings (such as Office 365), LinkedIn, and professional services remains substantially unchanged.

Adoption of the standard using the full retrospective method required us to restate certain previously reported results, including the recognition of additional revenue and an increase in the provision for income taxes, primarily due to the net change in Windows 10 revenue recognition. In addition, adoption of the standard resulted in an increase in accounts receivable and other current and long-term assets, driven by unbilled receivables from upfront recognition of revenue for certain multi-year commercial software subscriptions that include both distinct software licenses and SA; a reduction of unearned revenue, driven by the upfront recognition of license revenue from Windows 10 and certain multi-year commercial software subscriptions; and an increase in deferred income taxes, driven by the upfront recognition of revenue. Refer to Impacts to Previously Reported Results below for the impact of adoption of the standard in our consolidated financial statements.

Impacts to Previously Reported Results

Adoption of the standards related to revenue recognition and leases impacted our previously reported results as follows:

(In millions, except per share amounts)	As Previously Reported		New Revenue Standard Adjustment		As Restated
Income Statements
Year Ended June 30, 2017
Revenue	$	89,950	$	6,621	$	96,571
Provision for income taxes		1,945		2,467		4,412
Net income		21,204		4,285		25,489
Diluted earnings per share		2.71		0.54		3.25
Year Ended June 30, 2016
Revenue	$	85,320	$	5,834	$	91,154
Provision for income taxes		2,953		2,147		5,100
Net income		16,798		3,741		20,539
Diluted earnings per share		2.10		0.46		2.56

(In millions)	As Previously Reported		New Revenue Standard Adjustment			New Lease Standard Adjustment		As Restated
Balance Sheets
June 30, 2017
Accounts receivable, net of allowance for doubtful accounts	$	19,792	$	2,639		$	0	$	22,431
Operating lease right-of-use assets		0		0			6,555		6,555
Other current and long-term assets		11,147		32			0		11,179
Unearned revenue		44,479		(17,823	)		0		26,656
Deferred income taxes		531		5,203			0		5,734
Operating lease liabilities		0		0			5,372		5,372
Other current and long-term liabilities		23,464		(26	)		1,183		24,621
Stockholders' equity		72,394		15,317			0		87,711

Adoption of the standards related to revenue recognition and leases had no impact to cash from or used in operating, financing, or investing in our consolidated cash flows statements.

Recent Accounting Guidance Not Yet Adopted

Financial Instruments – Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued new guidance related to accounting for hedging activities. This guidance expands strategies that qualify for hedge accounting, changes how many hedging relationships are presented in the financial statements, and simplifies the application of hedge accounting in certain situations. The standard will be effective for us beginning July 1, 2019, with early adoption permitted for any interim or annual period before the effective date. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of this standard in our consolidated financial statements, including accounting policies, processes, and systems.

Income Taxes – Intra-Entity Asset Transfers

In October 2016, the FASB issued new guidance requiring an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party. This guidance is effective for us beginning July 1, 2018, with early adoption permitted beginning July 1, 2017. We plan to adopt the guidance effective July 1, 2018. Adoption of the guidance will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. We currently expect a net cumulative-effect adjustment of approximately $550 million, which will reverse the deferral of income tax consequences from past intra-entity transfers involving assets other than inventory and new deferred tax assets for amounts not recognized under current GAAP, partially offset by a U.S. deferred tax liability related to global intangible low-taxed income (“GILTI”). Adoption of the standard is expected to result in an increase in long-term deferred tax assets of $2.8 billion, an increase in long-term deferred tax liabilities of $2.1 billion, and a reduction to other current assets of $150 million. As a result of the TCJA, we are continuing to evaluate the impact of this standard in our consolidated financial statements, including accounting policies, processes, and systems.

Financial Instruments – Credit Losses

In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The standard will be effective for us beginning July 1, 2020, with early adoption permitted beginning July 1, 2019. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align our credit loss methodology with the new standard. We are currently evaluating the impact of this standard in our consolidated financial statements, including accounting policies, processes, and systems.  

Financial Instruments – Recognition, Measurement, Presentation, and Disclosure

In January 2016, the FASB issued a new standard related to certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most prominent among the changes in the standard is the requirement for changes in the fair value of our equity investments, with certain exceptions, to be recognized through net income rather than OCI. Under the standard, equity investments that do not have a readily determinable fair value are eligible for the measurement alternative. Using the measurement alternative, investments without readily determinable fair values will be valued at cost, with adjustments for changes in price or impairments reflected through net income.

The standard will be effective for us beginning July 1, 2018. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment from AOCI to retained earnings as of the effective date. A cumulative-effect adjustment will capture any previously held unrealized gains and losses held in AOCI related to our equity investments carried at fair value as well as the impact of recording the fair value of certain equity investments carried at cost.In preparation for adoption of this standard, we have implemented internal controls to align with the new standard and have concluded that we will elect the measurement alternative for equity investments that do not have readily determinable fair values.

The impact in our consolidated balance sheets upon adoption will not be material. Adoption of the standard will have no impact to cash from or used in operating, financing or investing in our consolidated cash flows statements.

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EARNINGS PER SHARE

12 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 2 — EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS 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 and stock awards.

The components of basic and diluted EPS were as follows:

(In millions, except earnings per share)
Year Ended June 30,	2018		2017		2016
Net income available for common shareholders (A)	$	16,571	$	25,489	$	20,539
Weighted average outstanding shares of common stock (B)		7,700		7,746		7,925
Dilutive effect of stock-based awards		94		86		88
Common stock and common stock equivalents (C)		7,794		7,832		8,013
Earnings Per Share
Basic (A/B)	$	2.15	$	3.29	$	2.59
Diluted (A/C)	$	2.13	$	3.25	$	2.56

Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.

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OTHER INCOME (EXPENSE), NET

12 Months Ended

Jun. 30, 2018

Other Income And Expenses [Abstract]

OTHER INCOME (EXPENSE), NET

NOTE 3 — OTHER INCOME (EXPENSE), NET

The components of other income (expense), net were as follows:

(In millions)
Year Ended June 30,	2018			2017			2016
Dividends and interest income	$	2,214		$	1,387		$	903
Interest expense		(2,733	)		(2,222	)		(1,243	)
Net recognized gains on investments		2,399			2,583			668
Net losses on derivatives		(187	)		(510	)		(443	)
Net losses on foreign currency remeasurements		(218	)		(111	)		(129	)
Other, net		(59	)		(251	)		(195	)
Total	$	1,416		$	876		$	(439	)

Following are details of net recognized gains (losses) on investments during the periods reported:

(In millions)
Year Ended June 30,	2018			2017			2016
Other-than-temporary impairments of investments	$	(47	)	$	(55	)	$	(322	)
Realized gains from sales of available-for-sale securities		3,478			3,064			1,376
Realized losses from sales of available-for-sale securities		(1,032	)		(426	)		(386	)
Total	$	2,399		$	2,583		$	668

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INVESTMENTS

12 Months Ended

Jun. 30, 2018

Investments Debt And Equity Securities [Abstract]

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
June 30, 2018
Cash	$	3,942	$	0	$	0		$	3,942	$	3,942	$	0	$	0
Mutual funds		246		0		0			246		246		0		0
Commercial paper		2,513		0		0			2,513		2,215		298		0
Certificates of deposit		2,058		0		0			2,058		1,865		193		0
U.S. government and agency securities		109,862		62		(1,167	)		108,757		3,678		105,079		0
Foreign government bonds		5,182		1		(10	)		5,173		0		5,173		0
Mortgage- and asset-backed securities		3,868		4		(13	)		3,859		0		3,859		0
Corporate notes and bonds		6,947		21		(56	)		6,912		0		6,912		0
Municipal securities		271		37		(1	)		307		0		307		0
Common and preferred stock		1,220		95		(10	)		1,305		0		0		1,305
Other investments		558		0		0			558		0		1		557
Total	$	136,667	$	220	$	(1,257	)	$	135,630	$	11,946	$	121,822	$	1,862

(In millions)	Cost Basis		Unrealized Gains		Unrealized Losses			Recorded Basis		Cash and Cash Equivalents		Short-term Investments		Equity and Other Investments
June 30, 2017
Cash	$	3,624	$	0	$	0		$	3,624	$	3,624	$	0	$	0
Mutual funds		1,478		0		0			1,478		1,478		0		0
Commercial paper		319		0		0			319		69		250		0
Certificates of deposit		1,358		0		0			1,358		972		386		0
U.S. government and agency securities		112,119		85		(360	)		111,844		16		111,828		0
Foreign government bonds		5,276		2		(13	)		5,265		1,504		3,761		0
Mortgage- and asset-backed securities		3,921		14		(4	)		3,931		0		3,931		0
Corporate notes and bonds		4,786		61		(12	)		4,835		0		4,835		0
Municipal securities		284		43		0			327		0		327		0
Common and preferred stock		2,472		3,062		(34	)		5,500		0		0		5,500
Other investments		523		0		0			523		0		0		523
Total	$	136,160	$	3,267	$	(423	)	$	139,004	$	7,663	$	125,318	$	6,023

As of June 30, 2018 and 2017, the recorded bases of common and preferred stock that are restricted for more than one year or are not publicly traded were $999 million and $1.1 billion, respectively. These investments are carried at cost and are reviewed quarterly for indicators of other-than-temporary impairment. It is not practicable for us to reliably estimate the fair value of these investments.

As of June 30,2018 and 2017, collateral received under agreements for loaned securities was $1.8 billion and $3.7 billion, respectively, and primarily comprised U.S. government and agency securities.

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
June 30, 2018
U.S. government and agency securities	$	82,352	$	(1,064	)	$	4,459	$	(103	)	$	86,811	$	(1,167	)
Foreign government bonds		3,457		(7	)		13		(3	)		3,470		(10	)
Mortgage- and asset-backed securities		2,072		(9	)		96		(4	)		2,168		(13	)
Corporate notes and bonds		3,111		(43	)		301		(13	)		3,412		(56	)
Municipal securities		45		(1	)		0		0			45		(1	)
Common and preferred stock		75		(6	)		8		(4	)		83		(10	)
Total	$	91,112	$	(1,130	)	$	4,877	$	(127	)	$	95,989	$	(1,257	)

	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, 2017
U.S. government and agency securities	$	87,558	$	(348	)	$	371	$	(12	)	$	87,929	$	(360	)
Foreign government bonds		4,006		(2	)		23		(11	)		4,029		(13	)
Mortgage- and asset-backed securities		1,068		(3	)		198		(1	)		1,266		(4	)
Corporate notes and bonds		669		(8	)		177		(4	)		846		(12	)
Common and preferred stock		69		(6	)		148		(28	)		217		(34	)
Total	$	93,370	$	(367	)	$	917	$	(56	)	$	94,287	$	(423	)

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.

Debt Investment Maturities

(In millions)	Cost Basis		Estimated Fair Value
June 30, 2018
Due in one year or less	$	31,590	$	31,451
Due after one year through five years		76,422		75,810
Due after five years through 10 years		21,765		21,396
Due after 10 years		924		922
Total	$	130,701	$	129,579

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DERIVATIVES

12 Months Ended

Jun. 30, 2018

Derivative Instruments And Hedging Activities Disclosure [Abstract]

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. dollar 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, Canadian dollar, and Australian dollar. As of June 30, 2018 and 2017, the total notional amounts of these foreign exchange contracts sold were $6.1 billion and $8.9 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 June 30, 2018 and 2017, the total notional amounts of these foreign exchange contracts sold were $5.0 billion and $5.1 billion, respectively.

Certain options and forwards not designated as hedging instruments are also used to manage the variability in foreign exchange rates on certain balance sheet amounts and to manage other foreign currency exposures. As of June 30, 2018, the total notional amounts of these foreign exchange contracts purchased and sold were $9.4 billion and $13.4 billion, respectively. As of June 30, 2017, the total notional amounts of these foreign exchange contracts purchased and sold were $8.8 billion and $10.6 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 June 30, 2018, the total notional amounts of equity contracts purchased and sold for managing market price risk were $49 million and $5 million, respectively. As of June 30, 2017, the total notional amounts of equity contracts purchased and sold for managing market price risk were $1.9 billion and $2.4 billion, respectively, of which $1.6 billion and $1.8 billion, respectively, were designated as hedging instruments.

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 June 30, 2018, the total notional amounts of fixed-interest rate contracts purchased and sold were $306 million and $390 million, respectively. As of June 30, 2017, the total notional amounts of fixed-interest rate contracts purchased and sold were $233 million and $352 million, respectively.

In addition, we use “To Be Announced” forward purchase commitments of mortgage-backed assets to gain exposure to agency mortgage-backed securities. These meet the definition of a derivative instrument in cases where physical delivery of the assets is not taken at the earliest available delivery date. As of June 30, 2018 and 2017, the total notional derivative amounts of mortgage contracts purchased were $568 million and $567 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 June 30, 2018, the total notional amounts of credit contracts purchased and sold were $4 million and $82 million, respectively. As of June 30, 2017, the total notional amounts of credit contracts purchased and sold were $267 million and $63 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 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 June 30, 2018, 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

The following table presents the fair values of derivative instruments designated as hedging instruments (“designated hedge derivatives”) and not designated as hedging instruments (“non-designated hedge derivatives”). 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:

		Assets															Liabilities
(In millions)	Short-term Investments			Other Current Assets				Equity and Other Investments			Other Long-term Assets				Other Current Liabilities				Other Long-term Liabilities
June 30, 2018
Non-designated Hedge Derivatives
Foreign exchange contracts	$	10			$	221			$	0		$	25			$	(193	)		$	(4	)
Equity contracts		2				0				0			0				(7	)			0
Interest rate contracts		11				0				0			0				(2	)			0
Credit contracts		0				0				0			0				(1	)			0
Total	$	23			$	221			$	0		$	25			$	(203	)		$	(4	)
Designated Hedge Derivatives
Foreign exchange contracts	$	95			$	174			$	0		$	0			$	0			$	0
Equity contracts		0				0				0			0				0				0
Total	$	95			$	174			$	0		$	0			$	0			$	0
Total gross amounts of derivatives	$	118			$	395			$	0		$	25			$	(203	)		$	(4	)
Gross derivatives either offset or subject to an enforceable master netting agreement	$	113			$	395			$	0		$	25			$	(203	)		$	(4	)
Gross amounts of derivatives offset on the balance sheet		(14	)			(135	)			0			(3	)			150				3
Net amounts presented on the balance sheet		99				260				0			22				(53	)			(1	)
Gross amounts of derivatives not offset on the balance sheet		0				0				0			0				0				0
Cash collateral received		0				0				0			0				(235	)			0
Net amount	$	99			$	260			$	0		$	22			$	(288	)		$	(1	)

	Assets															Liabilities
(In millions)	Short-term Investments			Other Current Assets				Equity and Other Investments				Other Long-term Assets				Other Current Liabilities				Other Long-term Liabilities
June 30, 2017
Non-designated Hedge Derivatives
Foreign exchange contracts	$	9			$	203			$	0			$	6			$	(134	)		$	(8	)
Equity contracts		3				0				0				0				(6	)			0
Interest rate contracts		3				0				0				0				(7	)			0
Credit contracts		5				0				0				0				(1	)			0
Total	$	20			$	203			$	0			$	6			$	(148	)		$	(8	)
Designated Hedge Derivatives
Foreign exchange contracts	$	80			$	133			$	0			$	0			$	(3	)		$	0
Equity contracts		0				0				67				0				(186	)			0
Total	$	80			$	133			$	67			$	0			$	(189	)		$	0
Total gross amounts of derivatives	$	100			$	336			$	67			$	6			$	(337	)		$	(8	)
Gross derivatives either offset or subject to an enforceable master netting agreement	$	100			$	336			$	67			$	6			$	(334	)		$	(8	)
Gross amounts of derivatives offset on the balance sheet		(20	)			(132	)			(67	)			(8	)			221				7
Net amounts presented on the balance sheet		80				204				0				(2	)			(113	)			(1	)
Gross amounts of derivatives not offset on the balance sheet		0				0				0				0				0				0
Cash collateral received		0				0				0				0				(228	)			0
Net amount	$	80			$	204			$	0			$	(2	)		$	(341	)		$	(1	)

Refer to Note 4 – Investments and Note 6 – Fair Value Measurements for further information.

Fair Value Hedge Gains (Losses)

We recognized in other income (expense), net the following gains (losses) on contracts designated as fair value hedges and their related hedged items:

(In millions)
Year Ended June 30,	2018			2017			2016
Foreign Exchange Contracts
Derivatives	$	25		$	441		$	(797	)
Hedged items		78			(386	)		838
Total amount of ineffectiveness	$	103		$	55		$	41
Equity Contracts
Derivatives	$	(324	)	$	(74	)	$	(76	)
Hedged items		324			74			76
Total amount of ineffectiveness	$	0		$	0		$	0
Amount of equity contracts excluded from effectiveness assessment	$	80		$	(80	)	$	(10	)

Cash Flow Hedge Gains (Losses)

We recognized the following gains (losses) on foreign exchange contracts designated as cash flow hedges:

(In millions)
Year Ended June 30,	2018			2017			2016
Effective Portion
Gains recognized in other comprehensive income (net of tax of $11, $4, and $24)	$	219		$	328		$	351
Gains reclassified from accumulated other comprehensive income (loss) into revenue		185			555			625
Amount Excluded from Effectiveness Assessment and Ineffective Portion
Losses recognized in other income (expense), net		(255	)		(389	)		(354	)

We estimate that $179 million of net derivative gains included in AOCI as of June 30, 2018 will be reclassified into earnings within the following 12 months. No significant amounts of gains (losses) were reclassified from AOCI into earnings as a result of forecasted transactions that failed to occur during fiscal year 2018.

Non-designated Derivative Gains (Losses)

Gains (losses) from changes in fair values of derivatives that are not designated as hedges are primarily recognized in other income (expense), net. 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), net, which were immaterial for the periods presented.

(In millions)
Year Ended June 30,	2018			2017			2016
Foreign exchange contracts	$	(33	)	$	(117	)	$	(55	)
Equity contracts		(87	)		(114	)		(21	)
Interest rate contracts		(15	)		14			10
Credit contracts		(2	)		5			(1	)
Other contracts		0			(22	)		(87	)
Total	$	(137	)	$	(234	)	$	(154	)

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FAIR VALUE MEASUREMENTS

12 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 6 — FAIR VALUE MEASUREMENTS

Financial 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
June 30, 2018
Assets
Mutual funds	$	246	$	0	$	0	$	246	$	0		$	246
Commercial paper		0		2,513		0		2,513		0			2,513
Certificates of deposit		0		2,058		0		2,058		0			2,058
U.S. government and agency securities		107,015		1,742		0		108,757		0			108,757
Foreign government bonds		22		5,054		0		5,076		0			5,076
Mortgage- and asset-backed securities		0		3,855		0		3,855		0			3,855
Corporate notes and bonds		0		6,894		15		6,909		0			6,909
Municipal securities		0		307		0		307		0			307
Common and preferred stock		287		0		18		305		0			305
Derivatives		1		535		2		538		(152	)		386
Total	$	107,571	$	22,958	$	35	$	130,564	$	(152	)	$	130,412
Liabilities
Derivatives and other	$	1	$	206	$	0	$	207	$	(153	)	$	54

(In millions)		Level 1		Level 2		Level 3		Gross Fair Value		Netting	(a)		Net Fair Value
June 30, 2017
Assets
Mutual funds	$	1,478	$	0	$	0	$	1,478	$	0		$	1,478
Commercial paper		0		319		0		319		0			319
Certificates of deposit		0		1,358		0		1,358		0			1,358
U.S. government and agency securities		109,228		2,616		0		111,844		0			111,844
Foreign government bonds		0		5,187		0		5,187		0			5,187
Mortgage- and asset-backed securities		0		3,934		0		3,934		0			3,934
Corporate notes and bonds		0		4,829		1		4,830		0			4,830
Municipal securities		0		327		0		327		0			327
Common and preferred stock		2,414		1,994		18		4,426		0			4,426
Derivatives		1		508		0		509		(227	)		282
Total	$	113,121	$	21,072	$	19	$	134,212	$	(227	)	$	133,985
Liabilities
Derivatives and other	$	0	$	345	$	39	$	384	$	(228	)	$	156

(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 changes in our Level 3 financial instruments that are measured at fair value on a recurring basis were immaterial during the periods presented.

The following table reconciles the total “Net Fair Value” of assets above to the balance sheet presentation of these same assets in Note 4 – Investments.

(In millions)
June 30,		2018			2017
Net fair value of assets measured at fair value on a recurring basis	$	130,412		$	133,985
Cash		3,942			3,624
Common and preferred stock measured at fair value on a nonrecurring basis		999			1,073
Other investments measured at fair value on a nonrecurring basis		557			523
Less derivative net assets classified as other current and long-term assets		(282	)		(202	)
Other		2			1
Recorded basis of investment components	$	135,630		$	139,004

Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During fiscal year 2018 and 2017, we did not record any material other-than-temporary impairments on financial assets required to be measured at fair value on a nonrecurring basis.

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INVENTORIES

12 Months Ended

Jun. 30, 2018

Inventory Disclosure [Abstract]

INVENTORIES

NOTE 7 — INVENTORIES

The components of inventories were as follows:

(In millions)
June 30,	2018		2017
Raw materials	$	655	$	797
Work in process		54		145
Finished goods		1,953		1,239
Total	$	2,662	$	2,181

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PROPERTY AND EQUIPMENT

12 Months Ended

Jun. 30, 2018

Property Plant And Equipment [Abstract]

PROPERTY AND EQUIPMENT

NOTE 8 — PROPERTY AND EQUIPMENT

The components of property and equipment were as follows:

(In millions)
June 30,	2018			2017
Land	$	1,254		$	1,107
Buildings and improvements		20,604			16,284
Leasehold improvements		4,735			5,064
Computer equipment and software		27,633			21,414
Furniture and equipment		4,457			4,044
Total, at cost		58,683			47,913
Accumulated depreciation		(29,223	)		(24,179	)
Total, net	$	29,460		$	23,734

During fiscal years 2018, 2017, and 2016, depreciation expense was $7.7 billion, $6.1 billion, and $4.9 billion, respectively. We have committed $1.9 billion for the construction of new buildings, building improvements, and leasehold improvements as of June 30, 2018.

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BUSINESS COMBINATIONS

12 Months Ended

Jun. 30, 2018

Business Combinations [Abstract]

BUSINESS COMBINATIONS

NOTE 9 — BUSINESS COMBINATIONS

LinkedIn Corporation

On December 8, 2016, we completed our acquisition of all issued and outstanding shares of LinkedIn Corporation, the world’s largest professional network on the Internet, for a total purchase price of $27.0 billion. The purchase price consisted primarily of cash of $26.9 billion. The acquisition is expected to accelerate the growth of LinkedIn, Office 365, and Dynamics 365. The financial results of LinkedIn have been included in our consolidated financial statements since the date of the acquisition.

The allocation of the purchase price to goodwill was completed as of June 30, 2017.

The major classes of assets and liabilities to which we allocated the purchase price were as follows:  

(In millions)
Cash and cash equivalents	$	1,328
Short-term investments		2,110
Other current assets		697
Property and equipment		1,529
Intangible assets		7,887
Goodwill (a)		16,803
Short-term debt (b)		(1,323	)
Other current liabilities		(1,117	)
Deferred income taxes		(774	)
Other		(131	)
Total purchase price	$	27,009

(a) Goodwill was assigned to our Productivity and Business Processes segment. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of LinkedIn. None of the goodwill is expected to be deductible for income tax purposes.

(b) Convertible senior notes issued by LinkedIn on November 12, 2014, substantially all of which were redeemed after our acquisition of LinkedIn. The remaining $18 million of notes are not redeemable and are included in long-term debt in our consolidated balance sheets. Refer to Note 12 – Debt for further information.

Following are the details of the purchase price allocated to the intangible assets acquired:

(In millions)	Amount		Weighted Average Life
Customer-related	$	3,607		7 years
Marketing-related (trade names)		2,148		20 years
Technology-based		2,109		3 years
Contract-based		23		5 years
Fair value of intangible assets acquired	$	7,887		9 years

Our consolidated income statements include the following revenue and operating loss attributable to LinkedIn since the date of acquisition:

(In millions)
Year Ended June 30,		2017
Revenue	$	2,271
Operating loss		(924	)

Following are the supplemental consolidated financial results of Microsoft Corporation on an unaudited pro forma basis, as if the acquisition had been consummated on July 1, 2015:

(In millions, except earnings per share)
Year Ended June 30,		2017		2016
Revenue	$	98,291	$	94,490
Net income		25,179		19,128
Diluted earnings per share		3.21		2.38

These pro forma results were based on estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had we been a combined company during the periods presented and are not necessarily indicative of our consolidated results of operations in future periods. The pro forma results include adjustments related to purchase accounting, primarily amortization of intangible assets. Acquisition costs and other nonrecurring charges were immaterial and are included in the earliest period presented.

GitHub Inc.

On June 4, 2018, we entered into a definitive agreement to acquire GitHub Inc. (“GitHub”) for $7.5 billion in an all-stock transaction. We expect the acquisition will close by the end of the calendar year, subject to approval by GitHub’s shareholders, satisfaction of certain regulatory approvals, and other customary closing conditions. GitHub will be included in our consolidated results of operations as of the date of acquisition.

Other

During fiscal year 2018, we completed nine acquisitions for total consideration of $948 million, substantially all of which was paid in cash. These entities have been included in our consolidated results of operations since their respective acquisition dates. Pro forma results of operations for these acquisitions have not been presented because the effects of these business combinations, individually and in aggregate, were not material to our consolidated results of operations.

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GOODWILL

12 Months Ended

Jun. 30, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

GOODWILL

NOTE 10 — GOODWILL

Changes in the carrying amount of goodwill were as follows:

(In millions)	June 30, 2016			Acquisitions				Other				June 30, 2017			Acquisitions			Other				June 30, 2018
Productivity and Business Processes		$	6,678		$	17,072	(a)		$	(11	)		$	23,739		$	72		$	12			$	23,823
Intelligent Cloud			5,467			49				39				5,555			164			(16	)			5,703
More Personal Computing			5,727			115				(14	)			5,828			394			(65	)			6,157
Total		$	17,872		$	17,236			$	14			$	35,122		$	630		$	(69	)		$	35,683

(a) Includes goodwill related to LinkedIn and other acquisitions. Refer to Note 9 – Business Combinations for further information.

The measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months. Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.

Any change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are presented as “Other” in the above table. Also included in “Other” are business dispositions and transfers between segments due to reorganizations, as applicable.

As of June 30, 2018 and 2017, accumulated goodwill impairment was $11.3 billion.

Goodwill Impairment  

We test goodwill for impairment annually on May 1 at the reporting unit level, primarily using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital. We believe use of a discounted cash flow approach is the most reliable indicator of the fair values of the businesses.

No instances of impairment were identified in our May 1, 2018, May 1, 2017, or May 1, 2016 tests.

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INTANGIBLE ASSETS

12 Months Ended

Jun. 30, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

NOTE 11 — INTANGIBLE ASSETS

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

(In millions)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
June 30,						2018							2017
Technology-based	$	7,220	$	(5,018	)	$	2,202	$	7,765	$	(4,318	)	$	3,447
Customer-related		4,031		(1,205	)		2,826		4,045		(692	)		3,353
Marketing-related		4,006		(1,071	)		2,935		4,016		(829	)		3,187
Contract-based		679		(589	)		90		841		(722	)		119
Total	$	15,936	$	(7,883	)	$	8,053	$	16,667	$	(6,561	)	$	10,106

No material impairments of intangible assets were identified during fiscal year 2018 or 2017.

During fiscal year 2016, we recorded impairment charges of $480 million related to intangible assets in the Devices reporting unit within our More Personal Computing segment. In the fourth quarter of fiscal year 2016, we tested these intangible assets for recoverability due to changes in facts and circumstances associated with the shift in strategic direction and reduced profitability expectations for our Phone business. Based on the results of our testing, we determined that the carrying value of the intangible assets was not recoverable, and an impairment charge was recorded to the extent that estimated fair value exceeded carrying value. We primarily used the income approach to determine the fair value of the intangible assets and determine the amount of impairment.

These intangible assets impairment charges were included in impairment and restructuring expenses in our consolidated income statement and reflected in Corporate and Other in our table of operating income (loss) by segment in Note 21 – Segment Information and Geographic Data.

We estimate that we have no significant residual value related to our intangible assets.

The components of intangible assets acquired during the periods presented were as follows:

(In millions)	Amount		Weighted Average Life		Amount		Weighted Average Life
Year Ended June 30,	2018				2017
Technology-based	$	178		4 years	$	2,265		2 years
Marketing-related		14		5 years		2,148		19 years
Contract-based		14		4 years		63		6 years
Customer-related		13		5 years		3,607		7 years
Total	$	219		5 years	$	8,083		9 years

Intangible assets amortization expense was $2.2 billion, $1.7 billion, and $978 million for fiscal years 2018, 2017, and 2016, respectively. Amortization of capitalized software was $54 million, $55 million, and $69 million for fiscal years 2018, 2017, and 2016, respectively.

The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2018:

(In millions)
Year Ending June 30,
2019	$	1,785
2020		1,260
2021		1,043
2022		949
2023		806
Thereafter		2,210
Total	$	8,053

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DEBT

12 Months Ended

Jun. 30, 2018

Debt Disclosure [Abstract]

DEBT

NOTE 12 — DEBT

Short-term Debt

As of June 30, 2018, we had no commercial paper issued and outstanding. As of June 30, 2017, we had $9.1 billion of commercial paper issued and outstanding, with a weighted average interest rate of 1.01% and maturities ranging from 25 days to 264 days. The estimated fair value of this commercial paper approximates its carrying value.

We have two $5.0 billion credit facilities that expire on October 30, 2018 and October 31, 2022, respectively. These credit facilities serve as a back-up for our commercial paper program. As of June 30, 2018, we were in compliance with the only financial covenant in both credit agreements, which requires us to maintain a coverage ratio of at least three times earnings before interest, taxes, depreciation, and amortization to interest expense, as defined in the credit agreements. No amounts were drawn against these credit facilities during any of the periods presented.

Long-term Debt

As of June 30, 2018, the total carrying value and estimated fair value of our long-term debt, including the current portion, were $76.2 billion and $77.5 billion, respectively. As of June 30, 2017, the total carrying value and estimated fair value of our long-term debt, including the current portion, were $77.1 billion and $80.3 billion, respectively. These estimated fair values are based on Level 2 inputs.

The components of our long-term debt, including the current portion, and the associated interest rates were as follows:

(In millions, except interest rates)	Face Value June 30, 2018		Face Value June 30, 2017		Stated Interest Rate	Effective Interest Rate
Notes
November 15, 2017	$	0	$	600	0.875%	1.084%
May 1, 2018		0		450	1.000%	1.106%
November 3, 2018		1,750		1,750	1.300%	1.396%
December 6, 2018		1,250		1,250	1.625%	1.824%
June 1, 2019		1,000		1,000	4.200%	4.379%
August 8, 2019		2,500		2,500	1.100%	1.203%
November 1, 2019		18		18	0.500%	0.500%
February 6, 2020		1,500		1,500	1.850%	1.952%
February 12, 2020		1,500		1,500	1.850%	1.935%
October 1, 2020		1,000		1,000	3.000%	3.137%
November 3, 2020		2,250		2,250	2.000%	2.093%
February 8, 2021		500		500	4.000%	4.082%
August 8, 2021		2,750		2,750	1.550%	1.642%
December 6, 2021 (a)		2,044		1,996	2.125%	2.233%
February 6, 2022		1,750		1,750	2.400%	2.520%
February 12, 2022		1,500		1,500	2.375%	2.466%
November 3, 2022		1,000		1,000	2.650%	2.717%
November 15, 2022		750		750	2.125%	2.239%
May 1, 2023		1,000		1,000	2.375%	2.465%
August 8, 2023		1,500		1,500	2.000%	2.101%
December 15, 2023		1,500		1,500	3.625%	3.726%
February 6, 2024		2,250		2,250	2.875%	3.041%
February 12, 2025		2,250		2,250	2.700%	2.772%
November 3, 2025		3,000		3,000	3.125%	3.176%
August 8, 2026		4,000		4,000	2.400%	2.464%
February 6, 2027		4,000		4,000	3.300%	3.383%
December 6, 2028 (a)		2,044		1,996	3.125%	3.218%
May 2, 2033 (a)		642		627	2.625%	2.690%
February 12, 2035		1,500		1,500	3.500%	3.604%
November 3, 2035		1,000		1,000	4.200%	4.260%
August 8, 2036		2,250		2,250	3.450%	3.510%
February 6, 2037		2,500		2,500	4.100%	4.152%
June 1, 2039		750		750	5.200%	5.240%
October 1, 2040		1,000		1,000	4.500%	4.567%
February 8, 2041		1,000		1,000	5.300%	5.361%
November 15, 2042		900		900	3.500%	3.571%
May 1, 2043		500		500	3.750%	3.829%
December 15, 2043		500		500	4.875%	4.918%
February 12, 2045		1,750		1,750	3.750%	3.800%
November 3, 2045		3,000		3,000	4.450%	4.492%
August 8, 2046		4,500		4,500	3.700%	3.743%
February 6, 2047		3,000		3,000	4.250%	4.287%
February 12, 2055		2,250		2,250	4.000%	4.063%
November 3, 2055		1,000		1,000	4.750%	4.782%
August 8, 2056		2,250		2,250	3.950%	4.033%
February 6, 2057		2,000		2,000	4.500%	4.528%
Total	$	76,898	$	77,837

(a) Euro-denominated debt securities.

The notes in the table above are senior unsecured obligations and rank equally with our other senior unsecured debt outstanding. Interest on these notes is paid semi-annually, except for the euro-denominated debt securities on which interest is paid annually. Cash paid for interest on our debt for fiscal years 2018, 2017, and 2016 was $2.4 billion, $1.6 billion, and $1.1 billion, respectively. As of June 30, 2018 and 2017, the aggregate debt issuance costs and unamortized discount associated with our long-term debt, including the current portion, were $658 million and $715 million, respectively.

Maturities of our long-term debt for each of the next five years and thereafter are as follows:

(In millions)
Year Ending June 30,
2019	$	4,000
2020		5,518
2021		3,750
2022		8,044
2023		2,750
Thereafter		52,836
Total	$	76,898

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INCOME TAXES

12 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 13 — INCOME TAXES

Recent Tax Legislation

On December 22, 2017, the TCJA was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect our business, such as imposing a one-time transition tax on deemed repatriation of deferred foreign income, reducing the U.S. federal statutory tax rate, and adopting a territorial tax system. The TCJA required us to incur a one-time transition tax on deferred foreign income not previously subject to U.S. income tax at a rate of 15.5% for foreign cash and certain other net current assets, and 8% on the remaining income. The TCJA also reduced the U.S. federal statutory tax rate from 35% to 21% effective January 1, 2018. For fiscal year 2018, our blended U.S. federal statutory tax rate is 28.1%. This is the result of using the tax rate of 35% for the first and second quarter of fiscal year 2018 and the reduced tax rate of 21% for the third and fourth quarter of fiscal year 2018. The TCJA includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a base erosion anti-abuse tax (“BEAT”) measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. The GILTI and BEAT provisions of the TCJA will be effective for us beginning July 1, 2018.

The TCJA was effective in the second quarter of fiscal year 2018. As of June 30, 2018, we have not completed our accounting for the estimated tax effects of the TCJA. During fiscal year 2018, we recorded a provisional net charge of $13.7 billion related to the TCJA based on reasonable estimates for those tax effects. Due to the timing of the enactment and the complexity in applying the provisions of the TCJA, the provisional net charge is subject to revisions as we continue to complete our analysis of the TCJA, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service (“IRS”), FASB, and other standard-setting and regulatory bodies. Adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. Our accounting for the estimated tax effects of the TCJA will be completed during the measurement period, which is not expected to extend beyond one year from the enactment date. The impacts of our estimates are described further below.

During fiscal year 2018, we recorded an estimated net charge of $13.7 billion related to the TCJA, due to the impact of the one-time transition tax on the deemed repatriation of deferred foreign income of $17.9 billion, offset in part by the impact of changes in the tax rate of $4.2 billion, primarily on deferred tax assets and liabilities.

We recorded an estimated $17.9 billion charge in fiscal year 2018 related to the transition tax, which was included in the provision for income taxes in our consolidated income statements and income taxes in our consolidated balance sheets. We have not yet completed our accounting for the transition tax as our analysis of deferred foreign income is not complete. To calculate the transition tax, we estimated our deferred foreign income for fiscal year 2018 because these tax returns are not complete or due. Fiscal year 2018 taxable income will be known once the respective tax returns are completed and filed. In addition, U.S. and foreign audit settlements may significantly impact the estimated transition tax. The impact of the U.S. and foreign audits on the transition tax will be known as the audits are concluded.

In addition, we recorded an estimated $4.2 billion benefit in fiscal year 2018 from the impact of changes in the tax rate, primarily on deferred tax assets and liabilities, which was included in provision for income taxes in our consolidated income statements and deferred income taxes and long-term income taxes in our consolidated balance sheets. We remeasured our deferred taxes to reflect the reduced rate that will apply when these deferred taxes are settled or realized in future periods.

The TCJA subjects a U.S. corporation to tax on its GILTI. Due to the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the TCJA and the application of GAAP. Under GAAP, we can make an accounting policy election to either treat taxes due on the GILTI inclusion as a current period expense or factor such amounts into our measurement of deferred taxes. We elected the deferred method, and the corresponding deferred tax assets and liabilities are included in the table of deferred income tax assets and liabilities below.

On August 1, 2018, the Internal Revenue Service published on its website proposed regulations relating to the transition tax imposed by the TCJA. Once published in the Federal Register, the proposed regulations are subject to a 60-day comment period. Final regulations are expected to be issued after consideration of comments. We are currently evaluating the impact of the proposed regulations.

Provision for Income Taxes

The components of the provision for income taxes were as follows:

(In millions)
Year Ended June 30,	2018			2017			2016
Current Taxes
U.S. federal	$	19,764		$	2,739		$	545
U.S. state and local		934			30			136
Foreign		4,348			2,472			1,940
Current taxes	$	25,046		$	5,241		$	2,621
Deferred Taxes
U.S. federal	$	(4,292	)	$	(554	)	$	1,919
U.S. state and local		(458	)		269			111
Foreign		(393	)		(544	)		449
Deferred taxes	$	(5,143	)	$	(829	)	$	2,479
Provision for income taxes	$	19,903		$	4,412		$	5,100

U.S. and foreign components of income before income taxes were as follows:

(In millions)
Year Ended June 30,	2018		2017		2016
U.S.	$	11,527	$	6,843	$	5,125
Foreign		24,947		23,058		20,514
Income before income taxes	$	36,474	$	29,901	$	25,639

Effective Tax Rate

The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate were as follows:

Year Ended June 30,	2018		2017		2016
Federal statutory rate		28.1%		35.0%		35.0%
Effect of:
Foreign earnings taxed at lower rates		(7.8)%		(11.6)%		(14.5)%
Impacts of TCJA		37.7%		0%		0%
Phone business losses		0%		(5.7)%		1.0%
Excess tax benefits relating to stock-based compensation		(2.5)%		(2.1)%		(1.6)%
Interest, net		1.2%		1.4%		0.9%
Other reconciling items, net		(2.1)%		(2.2)%		(0.9)%
Effective rate		54.6%		14.8%		19.9%

The increase from the federal statutory rate in fiscal year 2018 is primarily due to the net charge related to the enactment of the TCJA in the second quarter of fiscal year 2018, offset in part by earnings taxed at lower rates in foreign jurisdictions. The decrease from the federal statutory rate in fiscal year 2017 and 2016 is primarily due to earnings taxed at lower rates in foreign jurisdictions. Our foreign regional operating centers in Ireland, Singapore and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated 87%, 76%, and 91% of our foreign income before tax in fiscal years 2018, 2017, and 2016, respectively. Other reconciling items, net consists primarily of tax credits, U.S. state income taxes, and domestic production activities deduction. In fiscal years 2018, 2017, and 2016, there were no individually significant other reconciling items.

The increase in our effective tax rate for fiscal year 2018 compared to fiscal year 2017 was primarily due to the net charge related to the enactment of the TCJA and the realization of tax benefits attributable to previous Phone business losses in fiscal year 2017. The decrease in our effective tax rate for fiscal year 2017 compared to fiscal year 2016 was primarily due to the realization of tax benefits attributable to previous Phone business losses, offset in part by changes in the mix of our income before income taxes between the U.S. and foreign countries.

The components of the deferred income tax assets and liabilities were as follows:  

(In millions)
June 30,	2018				2017
Deferred Income Tax Assets
Stock-based compensation expense	$		460		$		777
Accruals, reserves, and other expenses			1,832				1,859
Loss and credit carryforwards			3,369				4,809
Depreciation and amortization			351				53
Other			56				255
Deferred income tax assets			6,068				7,753
Less valuation allowance			(3,186	)			(3,310	)
Deferred income tax assets, net of valuation allowance	$		2,882		$		4,443
Deferred Income Tax Liabilities
Foreign earnings	$	0			$	(1,134		)
Unrealized gain on investments and debt		0				(1,384		)
Unearned revenue		(639		)		(5,760		)
Depreciation and amortization		(1,103		)		(1,630		)
Other		(312		)		(21		)
Deferred income tax liabilities	$	(2,054		)	$	(9,929		)
Net deferred income tax assets (liabilities)	$	828			$	(5,486		)
Reported As
Other long-term assets	$	1,369			$	248
Long-term deferred income tax liabilities		(541		)		(5,734		)
Net deferred income tax assets (liabilities)	$	828			$	(5,486		)

We recorded a deferred tax liability of $7.4 billion related to the recognition of revenue as part of the adoption of the new revenue standard.

As of June 30, 2018, we had federal, state and foreign net operating loss carryforwards of $257 million, $1.4 billion and $11.4 billion, respectively. The federal and state net operating loss carryforwards will expire in various years from fiscal 2019 through 2038, if not utilized. The majority of our foreign net operating loss carryforwards do not expire. Certain acquired net operating loss carryforwards are subject to an annual limitation, but are expected to be realized with the exception of those which have a valuation allowance.

The valuation allowance disclosed in the table above relates to the foreign net operating loss carryforwards and other net deferred tax assets that may not be realized.

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or recovered.

Income taxes paid, net of refunds, were $5.5 billion, $2.4 billion, and $3.9 billion in fiscal years 2018, 2017, and 2016, respectively.

Uncertain Tax Positions

Unrecognized tax benefits as of June 30, 2018, 2017, and 2016, were $12.0 billion, $11.7 billion, and $10.2 billion, respectively, and were included in long-term income taxes in our consolidated balance sheets. If recognized, these tax benefits would affect our effective tax rates for fiscal years 2018, 2017, and 2016, by $11.3 billion, $10.2 billion, and $8.8 billion, respectively.

As of June 30, 2018, 2017, and 2016, we had accrued interest expense related to uncertain tax positions of $3.0 billion, $2.3 billion, and $1.9 billion, respectively, net of income tax benefits. Interest expense on unrecognized tax benefits, net of tax effects, was $688 million, $399 million, and $163 million in fiscal years 2018, 2017, and 2016, respectively, and was included in provision for income taxes.

The aggregate changes in the balance of unrecognized tax benefits were as follows:

(In millions)
Year Ended June 30,	2018			2017			2016
Balance, beginning of year	$	11,737		$	10,164		$	9,599
Decreases related to settlements		(193	)		(4	)		(201	)
Increases for tax positions related to the current year		1,445			1,277			1,086
Increases for tax positions related to prior years		151			397			115
Decreases for tax positions related to prior years		(1,176	)		(49	)		(317	)
Decreases due to lapsed statutes of limitations		(3	)		(48	)		(118	)
Balance, end of year	$	11,961		$	11,737		$	10,164

While we settled a portion of the IRS audit for tax years 2004 to 2006 during the third quarter of fiscal year 2011, and a portion of the IRS audit for tax years 2007 to 2009 during the first quarter of fiscal year 2016, we remain under audit for those years. In the second quarter of fiscal year 2018, we settled a portion of the IRS audit for tax years 2010 to 2013. We continue to be subject to examination by the IRS for tax years 2010 to 2017. In February 2012, the IRS withdrew its 2011 Revenue Agents Report for tax years 2004 to 2006 and reopened the audit phase of the examination. As of June 30, 2018, the primary unresolved issue relates to transfer pricing, which could have a significant impact in our consolidated financial statements if not resolved favorably. We believe our allowances for income tax contingencies are adequate. We have not received a proposed assessment for the unresolved issues and do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months.

We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years 1996 to 2017, some of which are currently under audit by local tax authorities. The resolution of each of these audits is not expected to be material to our consolidated financial statements.

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RESTRUCTURING CHARGES

12 Months Ended

Jun. 30, 2018

Restructuring And Related Activities [Abstract]

RESTRUCTURING CHARGES

NOTE 14 — RESTRUCTURING CHARGES

2016 Restructuring

In the fourth quarter of fiscal year 2016, management approved restructuring plans that resulted in approximately 4,700 job eliminations in fiscal year 2017, primarily across our smartphone hardware business and global sales. In fiscal year 2016, we incurred restructuring charges of $501 million in connection with the 2016 restructuring plans, including severance expenses and other reorganization costs. The actions associated with these restructuring plans were completed as of June 30, 2017.

2017 Restructuring

In June 2017, management approved a sales and marketing restructuring plan. In fiscal year 2017, we recorded employee severance expenses of $306 million primarily related to this sales and marketing restructuring plan. The actions associated with this restructuring plan were completed as of June 30, 2018.

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UNEARNED REVENUE

12 Months Ended

Jun. 30, 2018

Revenue From Contract With Customer [Abstract]

UNEARNED REVENUE

NOTE 15 — UNEARNED REVENUE

Unearned revenue by segment was as follows:

(In millions)
June 30,	2018		2017
Productivity and Business Processes	$	14,864	$	12,692
Intelligent Cloud		14,706		11,152
More Personal Computing		3,150		2,812
Total	$	32,720	$	26,656

The opening balance of unearned revenue was $22.2 billion as of July 1, 2016.

Changes in unearned revenue were as follows:

(In millions)
Year Ended June 30, 2018
Balance, beginning of period	$	26,656
Deferral of revenue		61,142
Recognition of unearned revenue		(55,078	)
Balance, end of period	$	32,720

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized (“contracted not recognized revenue”), which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted not recognized revenue was $73 billion as of June 30, 2018, of which we expect to recognize approximately 60% of the revenue over the next 12 months and the remainder thereafter.

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LEASES

12 Months Ended

Jun. 30, 2018

Leases [Abstract]

LEASES

NOTE 16 — LEASES

We have operating and finance leases for datacenters, corporate offices, research and development facilities, retail stores, and certain equipment. Our leases have remaining lease terms of 1 year to 20 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.

The components of lease expense were as follows:

(In millions)
Year Ended June 30,	2018			2017		2016
Operating lease cost	$	1,585	$	1,412	$	936
Finance lease cost:
Amortization of right-of-use assets	$	243	$	104	$	28
Interest on lease liabilities		175		68		28
Total finance lease cost	$	418	$	172	$	56

Supplemental cash flow information related to leases was as follows:

(In millions)
Year Ended June 30,	2018			2017		2016
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,522	$	1,157	$	936
Operating cash flows from finance leases		175		68		28
Financing cash flows from finance leases		144		46		6
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		1,571		1,270		1,062
Finance leases		1,933		1,773		413

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)
June 30,	2018			2017
Operating Leases
Operating lease right-of-use assets	$	6,686		$	6,555
Other current liabilities	$	1,399		$	1,423
Operating lease liabilities		5,568			5,372
Total operating lease liabilities	$	6,967		$	6,795
Finance Leases
Property and equipment, gross	$	4,543		$	2,658
Accumulated depreciation		(404	)		(161	)
Property and equipment, net	$	4,139		$	2,497
Other current liabilities	$	176		$	113
Other long-term liabilities		4,125			2,425
Total finance lease liabilities	$	4,301		$	2,538
Weighted Average Remaining Lease Term
Operating leases		7 years			7 years
Finance leases		13 years			13 years
Weighted Average Discount Rate
Operating leases		2.7%			2.5%
Finance leases		5.2%			4.7%

Maturities of lease liabilities were as follows:

(In millions)
Year Ending June 30,	Operating Leases			Finance Leases
2019	$	1,492		$	386
2020		1,347			393
2021		1,086			401
2022		902			408
2023		721			410
Thereafter		2,157			4,036
Total lease payments		7,705			6,034
Less imputed interest		(738	)		(1,733	)
Total	$	6,967		$	4,301

As of June 30, 2018, we have additional operating and finance leases, primarily for datacenters, that have not yet commenced of $594 million and $2.4 billion, respectively. These operating and finance leaseswill commence between fiscal year 2019 and fiscal year 2020 with lease terms of 1 year to 20 years.

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CONTINGENCIES

12 Months Ended

Jun. 30, 2018

Commitments And Contingencies Disclosure [Abstract]

CONTINGENCIES

NOTE 17 — CONTINGENCIES

Patent and Intellectual Property Claims

There were 34 patent infringement cases pending against Microsoft as of June 30, 2018, none of which are material individually or in aggregate.

Antitrust, Unfair Competition, and Overcharge Class Actions

Antitrust and unfair competition class action lawsuits were filed against us in British Columbia, Ontario, and Quebec, Canada. All three have been certified on behalf of Canadian indirect purchasers who acquired licenses for Microsoft operating system software and/or productivity application software between 1998 and 2010.

The trial of the British Columbia action commenced in May 2016. Following a mediation, the parties agreed to a global settlement of all three Canadian actions, and have submitted the proposed settlement agreement to the courts in all three jurisdictions for approval. The courts will likely reach a decision on approval in September 2018.

Other Antitrust Litigation and Claims

China State Administration for Industry and Commerce Investigation

In 2014, Microsoft was informed that China’s State Agency for Market Regulation (“SAMR”) (formerly State Administration for Industry and Commerce) had begun a formal investigation relating to China’s Anti-Monopoly Law, and the SAMR conducted onsite inspections of Microsoft offices in Beijing, Shanghai, Guangzhou, and Chengdu. SAMR has stated the investigation relates to compatibility, bundle sales, file verification issues related to Windows and Office software, and potentially other issues.

Product-Related Litigation

U.S. Cell Phone Litigation

Microsoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a defendant in 35 lawsuits filed in the Superior Court for the District of Columbia by individual plaintiffs who allege that radio emissions from cellular handsets caused their brain tumors and other adverse health effects. We assumed responsibility for these claims in our agreement to acquire Nokia’s Devices and Services business and have been substituted for the Nokia defendants. Nine of these cases were filed in 2002 and are consolidated for certain pre-trial proceedings; the remaining cases are stayed. In a separate 2009 decision, the Court of Appeals for the District of Columbia held that adverse health effect claims arising from the use of cellular handsets that operate within the U.S. Federal Communications Commission radio frequency emission guidelines (“FCC Guidelines”) are pre-empted by federal law. The plaintiffs allege that their handsets either operated outside the FCC Guidelines or were manufactured before the FCC Guidelines went into effect. The lawsuits also allege an industry-wide conspiracy to manipulate the science and testing around emission guidelines.

In 2013, the defendants in the consolidated cases moved to exclude the plaintiffs’ expert evidence of general causation on the basis of flawed scientific methodologies. In 2014, the trial court granted in part and denied in part the defendants’ motion to exclude the plaintiffs’ general causation experts. The defendants filed an interlocutory appeal challenging the standard for evaluating expert scientific evidence, which the District of Columbia Court of Appeals heard en banc. In October 2016, the Court of Appeals issued its decision adopting the standard advocated by the defendants and remanding the cases to the trial court for further proceedings under that standard. The plaintiffs have filed supplemental expert evidence, portions of which the defendants have moved to strike.

Canadian Cell Phone Class Action

Microsoft Mobile Oy, along with other handset manufacturers and network operators, is a defendant in a 2013 class action lawsuit filed in the Supreme Court of British Columbia by a purported class of Canadians who have used cellular phones for at least 1,600 hours, including a subclass of users with brain tumors, alleging adverse health effects from cellular phone use. Microsoft was served with the complaint in June 2014 and has been substituted for the Nokia defendants. The litigation has been dormant for more than three years.

Employment-Related Litigation

Moussouris v. Microsoft

Current and former female Microsoft employees in certain engineering and information technology roles brought this class action in federal court in Seattle in 2015, alleging systemic gender discrimination in pay and promotions. The plaintiffs moved to certify the class in October 2017. Microsoft filed an opposition in January 2018, attaching an expert report showing no statistically significant disparity in pay and promotions between similarly situated men and women. In June 2018, the court denied the plaintiffs’ motion for class certification. The plaintiffs have appealed to the U.S. Court of Appeals for the Ninth Circuit. In July, the court denied Microsoft’s motion for summary judgment with respect to the named plaintiffs.     

Other Contingencies

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

As of June 30, 2018, we accrued aggregate legal liabilities of $323 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $1.1 billion in aggregate beyond recorded amounts are reasonably possible. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact in our consolidated financial statements for the period in which the effects become reasonably estimable.

Indemnifications

We provide indemnifications of varying scope and size to certain customers against claims of intellectual property infringement made by third parties arising from the use of our products and certain other matters.Additionally, we have agreed to cover damages resulting from breaches of certain security and privacy commitments in our cloud business. In evaluating estimated losses on these obligations, we consider factors such as the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of loss. These obligations did not have a material impact in our consolidated financial statements during the periods presented.

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STOCKHOLDERS' EQUITY

12 Months Ended

Jun. 30, 2018

Equity [Abstract]

STOCKHOLDERS' EQUITY

NOTE 18 — STOCKHOLDERS’ EQUITY

Shares Outstanding

Shares of common stock outstanding were as follows:

(In millions)
Year Ended June 30,	2018			2017			2016
Balance, beginning of year		7,708			7,808			8,027
Issued		68			70			75
Repurchased		(99	)		(170	)		(294	)
Balance, end of year		7,677			7,708			7,808

Share Repurchases

On September 16, 2013, our Board of Directors approved a share repurchase program authorizing up to $40.0 billion in share repurchases. This share repurchase program became effective on October 1, 2013, and was completed on December 22, 2016.

On September 20, 2016, our Board of Directors approved a share repurchase program authorizing up to an additional $40.0 billion in share repurchases. This share repurchase program commenced on December 22, 2016 following completion of the prior program approved on September 16, 2013, has no expiration date, and may be suspended or discontinued at any time without notice. As of June 30, 2018, $28.2 billion remained of this $40.0 billion share repurchase program.

We repurchased the following shares of common stock under the share repurchase programs:

(In millions)	Shares		Amount		Shares		Amount		Shares		Amount
Year Ended June 30,	2018				2017				2016
First Quarter		22	$	1,600		63	$	3,550		89	$	4,000
Second Quarter		22		1,800		59		3,533		66		3,600
Third Quarter		34		3,100		25		1,600		69		3,600
Fourth Quarter		21		2,100		23		1,600		70		3,600
Total		99	$	8,600		170	$	10,283		294	$	14,800

Shares repurchased beginning in the third quarter of fiscal year 2017 were under the share repurchase program approved September 20, 2016. All other shares repurchased were under the share repurchase program approved September 16, 2013. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards. All repurchases were made using cash resources.

Dividends

Our Board of Directors declared the following dividends:

Declaration Date	Dividend Per Share			Record Date		Amount			Payment Date
Fiscal Year 2018						(in millions)
September 19, 2017		$	0.42		November 16, 2017		$	3,238		December 14, 2017
November 29, 2017			0.42		February 15, 2018			3,232		March 8, 2018
March 12, 2018			0.42		May 17, 2018			3,226		June 14, 2018
June 13, 2018			0.42		August 16, 2018			3,224		September 13, 2018
Fiscal Year 2017
September 20, 2016		$	0.39		November 17, 2016		$	3,024		December 8, 2016
November 30, 2016			0.39		February 16, 2017			3,012		March 9, 2017
March 14, 2017			0.39		May 18, 2017			3,009		June 8, 2017
June 13, 2017			0.39		August 17, 2017			3,003		September 14, 2017

The dividend declared on June 13, 2018 was included in other current liabilities as of June 30, 2018.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

12 Months Ended

Jun. 30, 2018

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

NOTE 19 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated other comprehensive income (loss) by component:

(In millions)
Year Ended June 30,	2018			2017			2016
Derivatives
Balance, beginning of period	$	134		$	352		$	590
Unrealized gains, net of tax of $11, $4, and $24		218			328			351
Reclassification adjustments for gains included in revenue		(185	)		(555	)		(625	)
Tax expense included in provision for income taxes		6			9			36
Amounts reclassified from accumulated other comprehensive income		(179	)		(546	)		(589	)
Net change related to derivatives, net of tax of $5, $(5), and $(12)		39			(218	)		(238	)
Balance, end of period	$	173		$	134		$	352
Investments
Balance, beginning of period	$	1,825		$	2,941		$	3,169
Unrealized gains (losses), net of tax of $(427), $267, and $120		(1,146	)		517			219
Reclassification adjustments for gains included in other income (expense), net		(2,309	)		(2,513	)		(688	)
Tax expense included in provision for income taxes		738			880			241
Amounts reclassified from accumulated other comprehensive income		(1,571	)		(1,633	)		(447	)
Net change related to investments, net of tax of $(1,165), $(613), and $(121)		(2,717	)		(1,116	)		(228	)
Balance, end of period	$	(892	)	$	1,825		$	2,941
Translation Adjustments and Other
Balance, beginning of period	$	(1,332	)	$	(1,499	)	$	(1,237	)
Translation adjustments and other, net of tax effects of $0, $9, and $(33)		(178	)		167			(262	)
Balance, end of period	$	(1,510	)	$	(1,332	)	$	(1,499	)
Cumulative effect of accounting change		42			0			0
Accumulated other comprehensive income (loss), end of period	$	(2,187	)	$	627		$	1,794

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EMPLOYEE STOCK AND SAVINGS PLANS

12 Months Ended

Jun. 30, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

EMPLOYEE STOCK AND SAVINGS PLANS

NOTE 20 — EMPLOYEE STOCK AND SAVINGS PLANS

We grant stock-based compensation to employees and directors. As of June 30, 2018, an aggregate of 381 million shares were authorized for future grant under our stock plans. In fiscal year 2018, our Board of Directors approved the 2017 Stock Plan, which authorized an additional 308 million shares for future grant under our stock plans. Awards that expire or are canceled without delivery of shares generally become available for issuance under the plans. We issue new shares of Microsoft common stock to satisfy vesting of awards granted under our stock plans. We also have an ESPP for all eligible employees.

Stock-based compensation expense and related income tax benefits were as follows:

(In millions)
Year Ended June 30,	2018		2017		2016
Stock-based compensation expense	$	3,940	$	3,266	$	2,668
Income tax benefits related to stock-based compensation		823		1,066		882

Stock Plans

Stock awards entitle the holder to receive shares of Microsoft common stock as the award vests. Stock awards generally vest over a four or five-year service period.

Executive Incentive Plan

Under the Executive Incentive Plan, the Compensation Committee approves stock awards to executive officers and certain senior executives. RSUs generally vest ratably over a four-year service period. PSUs generally vest over a three-year performance period. The number of shares the PSU holder receives is based on the extent to which the corresponding performance goals have been achieved.

Activity for All Stock Plans

The fair value of stock awards was estimated on the date of grant using the following assumptions:

Year Ended June 30,	2018		2017		2016
Dividends per share (quarterly amounts)		$0.39 - $0.42		$0.36 - $0.39		$0.31 - $0.36
Interest rates		1.7% - 2.9%		1.2% - 2.2%		1.1% - 1.8%

During fiscal year 2018, the following activity occurred under our stock plans:

Shares			Weighted Average Grant-Date Fair Value
(In millions)
Stock Awards
Nonvested balance, beginning of year	201		$	46.32
Granted (a)	70			75.88
Vested	(80	)		45.74
Forfeited	(17	)		53.41
Nonvested balance, end of year	174			57.85

(a) Includes 3 million, 2 million, and 1 million of PSUs granted at target and performance adjustments above target levels for fiscal years 2018, 2017, and 2016, respectively.

As of June 30, 2018, there was approximately $7.0 billion of total unrecognized compensation costs related to stock awards. These costs are expected to be recognized over a weighted average period of 3 years. The weighted average grant-date fair value of stock awards granted was $75.88, $55.64, and $41.51 for fiscal years 2018, 2017, and 2016, respectively. The fair value of stock awards vested was $6.6 billion, $4.8 billion, and $3.9 billion, for fiscal years 2018, 2017, and 2016, respectively.

Employee Stock Purchase Plan

We have an ESPP for all eligible employees. Shares of our common stock may be purchased by employees at three-month intervals at 90% of the fair market value on the last trading day of each three-month period. Employees may purchase shares having a value not exceeding 15% of their gross compensation during an offering period. Employees purchased the following shares during the periods presented:

(Shares in millions)
Year Ended June 30,	2018		2017		2016
Shares purchased		13		13		15
Average price per share	$	76.40	$	56.36	$	44.83

As of June 30, 2018, 116 million shares of our common stock were reserved for future issuance through the ESPP.

Savings Plan

We have a savings plan in the U.S. that qualifies under Section 401(k) of the Internal Revenue Code, and a number of savings plans in international locations. Participating U.S. employees may contribute a portion of their salary, subject to certain limitations. We contribute fifty cents for each dollar a participant contributes in this plan, with a maximum employer contribution of 50% of the IRS contribution limit for the calendar year. Matching contributions for all plans were $807 million, $734 million, and $549 million in fiscal years 2018, 2017, and 2016, respectively, and were expensed as contributed.

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SEGMENT INFORMATION AND GEOGRAPHIC DATA

12 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

SEGMENT INFORMATION AND GEOGRAPHIC DATA

NOTE 21 — SEGMENT INFORMATION AND GEOGRAPHIC DATA

In its operation of the business, management, including our chief operating decision maker, who is also our Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with GAAP. During the periods presented, we reported our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.

Our reportable segments are described below.

Productivity and Business Processes

Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises:

• Office Commercial, including Office 365 subscriptions and Office licensed on-premises, comprising Office, Exchange, SharePoint, Skype for Business, and Microsoft Teams, and related Client Access Licenses (“CALs”).

• Office Consumer, including Office 365 subscriptions and Office licensed on-premises, and Office Consumer Services, including Skype, Outlook.com, and OneDrive.

• LinkedIn, including Talent Solutions, Marketing Solutions, and Premium Subscriptions.

• Dynamics business solutions, including Dynamics ERP on-premises, Dynamics CRM on-premises, and Dynamics 365, a set of cloud-based applications across ERP and CRM.

Intelligent Cloud

Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business. This segment primarily comprises:

• Server products and cloud services, including Microsoft SQL Server, Windows Server, Visual Studio, System Center, and related CALs, and Azure.

• Enterprise Services, including Premier Support Services and Microsoft Consulting Services.

More Personal Computing

Our More Personal Computing segment consists of products and services geared towards harmonizing the interests of end users, developers, and IT professionals across all devices. This segment primarily comprises:

• Windows, including Windows OEM licensing and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; Windows Internet of Things (“IoT”); and MSN advertising.

• Devices, including Microsoft Surface, PC accessories, and other intelligent devices.

• Gaming, including Xbox hardware and Xbox software and services, comprising Xbox Live transactions, subscriptions, and advertising (“Xbox Live”), video games, and third-party video game royalties.

• Search.

Revenue and costs are generally directly attributed to our segments. However, due to the integrated structure of our business, certain revenue recognized and costs incurred by one segment may benefit other segments. Revenue from certain contracts is allocated among the segments based on the relative value of the underlying products and services, which can include allocation based on actual prices charged, prices when sold separately, or estimated costs plus a profit margin. Cost of revenue is allocated in certain cases based on a relative revenue methodology. Operating expenses that are allocated primarily include those relating to marketing of products and services from which multiple segments benefit and are generally allocated based on relative gross margin.

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: legal, including settlements and fines; information technology; human resources; finance; excise taxes; field selling; 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 corporate-level activity is not allocated to our segments, including impairment and restructuring expenses.

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

(In millions)
Year Ended June 30,		2018		2017			2016
Revenue
Productivity and Business Processes	$	35,865	$	29,870		$	25,792
Intelligent Cloud		32,219		27,407			24,952
More Personal Computing		42,276		39,294			40,410
Total	$	110,360	$	96,571		$	91,154
Operating Income (Loss)
Productivity and Business Processes	$	12,924	$	11,389		$	11,756
Intelligent Cloud		11,524		9,127			9,249
More Personal Computing		10,610		8,815			6,183
Corporate and Other		0		(306	)		(1,110	)
Total	$	35,058	$	29,025		$	26,078

Corporate and Other operating loss comprised impairment and restructuring expenses.

No sales to an individual customer or country other than the United States accounted for more than 10% of revenue for the fiscal years 2018, 2017, or 2016. Revenue, classified by the major geographic areas in which our customers are located, was as follows:

(In millions)
Year Ended June 30,	2018		2017		2016
United States (a)	$	55,926	$	51,078	$	46,416
Other countries		54,434		45,493		44,738
Total	$	110,360	$	96,571	$	91,154

(a) Includes billings to OEMs and certain multinational organizations because of the nature of these businesses and the impracticability of determining the geographic source of the revenue.

Revenue from external customers, classified by significant product and service offerings, was as follows:

(In millions)
Year Ended June 30,	2018		2017		2016
Office products and cloud services	$	28,316	$	25,573	$	23,868
Server products and cloud services		26,129		21,649		19,062
Windows		19,518		18,593		17,548
Gaming		10,353		9,051		9,202
Search advertising		7,012		6,219		5,428
Enterprise Services		5,846		5,542		5,659
Devices		5,134		5,062		7,888
LinkedIn		5,259		2,271		0
Other		2,793		2,611		2,499
Total	$	110,360	$	96,571	$	91,154

Our commercial cloud revenue, which primarily comprises Office 365 commercial, Azure, Dynamics 365, and other cloud properties, was $23.2 billion, $14.9 billion, and $9.5 billion in fiscal years 2018, 2017, and 2016, respectively. These amounts are primarily included in Office products and services and server products and cloud services in the table above.

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; 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.

Long-lived assets, excluding financial instruments and tax assets, classified by the location of the controlling statutory company and with countries over 10% of the total shown separately, were as follows:

(In millions)
June 30,	2018		2017		2016
United States	$	44,501	$	42,730	$	25,145
Ireland		12,843		12,889		2,099
Luxembourg		6,856		6,854		6,868
Other countries		15,682		13,044		11,047
Total	$	79,882	$	75,517	$	45,159

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QUARTERLY INFORMATION (UNAUDITED)

12 Months Ended

Jun. 30, 2018

Quarterly Financial Information Disclosure [Abstract]

QUARTERLY INFORMATION (UNAUDITED)

NOTE 22 — QUARTERLY INFORMATION (UNAUDITED)

(In millions, except per share amounts)
Quarter Ended	September 30		December 31			March 31		June 30		Total
Fiscal Year 2018
Revenue	$	24,538	$	28,918		$	26,819	$	30,085	$	110,360
Gross margin		16,260		17,854			17,550		20,343		72,007
Operating income		7,708		8,679			8,292		10,379		35,058
Net income (loss) (a)		6,576		(6,302	)		7,424		8,873		16,571
Basic earnings (loss) per share		0.85		(0.82	)		0.96		1.15		2.15
Diluted earnings (loss) per share (b)		0.84		(0.82	)		0.95		1.14		2.13

Fiscal Year 2017 (c)
Revenue	$	21,928	$	25,826	$	23,212	$	25,605		$	96,571
Gross margin		14,084		15,925		15,152		17,149			62,310
Operating income		6,715		7,905		6,723		7,682	(d)		29,025	(d)
Net income		5,667		6,267		5,486		8,069	(d)		25,489	(d)
Basic earnings per share		0.73		0.81		0.71		1.05			3.29
Diluted earnings per share		0.72		0.80		0.70		1.03	(d)		3.25	(d)

(a) Reflects the net charge (benefit) related to the TCJA of $13.8 billion for the second quarter, $(104) million for the fourth quarter, and $13.7 billion for fiscal year 2018.

(b) Reflects the net charge (benefit) related to the TCJA, which decreased (increased) diluted EPS $1.78 for the second quarter, $(0.01) for the fourth quarter, and $1.75 for fiscal year 2018.

(c) On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

(d) Includes $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan, which decreased operating income, net income, and diluted EPS by $306 million, $243 million, and $0.04, respectively.

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ACCOUNTING POLICIES (Policies)

12 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Accounting Principles

Accounting Principles

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

We have recast certain prior period income tax liabilities as discussed in the Recent Tax Legislation section below. We have also recast prior period securities lending payables to other current liabilities in our consolidated balance sheets to conform to the current period presentation. These items had no impact in our consolidated income statements or net cash from or used in operating, financing, or investing in our consolidated cash flows statements.

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated. Equity investments for which we are able to 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 for 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.

Estimates and Assumptions

Estimates and Assumptions

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price (“SSP”) of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; product warranties; the fair value of and/or potential impairment of goodwill and intangible assets for our reporting units; product life cycles; useful lives of our tangible and intangible assets; allowances for doubtful accounts; the market value of, and demand for, our inventory; stock-based compensation forfeiture rates; when technological feasibility is achieved for our products; the potential outcome of future tax consequences of events that have been recognized in our consolidated financial statements or tax returns; and determining when investment impairments are other-than-temporary. Actual results and outcomes may differ from management’s estimates and assumptions.

Foreign Currencies

Foreign Currencies

Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income (“OCI”).

Revenue

Revenue

Product Revenue and Service and Other Revenue

Product revenue includes sales from operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games; and hardware such as PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.

Service and other revenue includes sales from cloud-based solutions that provide customers with software, services, platforms, and content such as Microsoft Office 365, Microsoft Azure, Microsoft Dynamics 365, and Xbox Live; solution support; and consulting services. Service and other revenue also includes sales from online advertising and LinkedIn.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

Nature of Products and Services

Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. In cases where we allocate revenue to software updates, primarily because the updates are provided at no additional charge, revenue is recognized as the updates are provided, which is generally ratably over the estimated life of the related device or license.

Certain volume licensing programs, including Enterprise Agreements, include on-premises licenses combined with Software Assurance (“SA”). SA conveys rights to new software and upgrades released over the contract period and provides support, tools, and training to help customers deploy and use products more efficiently. On-premises licenses are considered distinct performance obligations when sold with SA. Revenue allocated to SA is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits, given that SA comprises distinct performance obligations that are satisfied over time.  

Cloud services, which allow customers to use hosted software over the contract period without taking possession of the software, are provided on either a subscription or consumption basis. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract period. Revenue related to cloud services provided on a consumption basis, such as the amount of storage used in a period, is recognized based on the customer utilization of such resources. When cloud services require a significant level of integration and interdependency with software and the individual components are not considered distinct, all revenue is recognized over the period in which the cloud services are provided.

Revenue from search advertising is recognized when the advertisement appears in the search results or when the action necessary to earn the revenue has been completed. Revenue from consulting services is recognized as services are provided.

Our hardware is generally highly dependent on, and interrelated with, the underlying operating system and cannot function without the operating system. In these cases, the hardware and software license are accounted for as a single performance obligation and revenue is recognized at the point in time when ownership is transferred to resellers or directly to end customers through retail stores and online marketplaces.

Refer to Note 21 – Segment Information and Geographic Data for further information, including revenue by significant product and service offering.

Significant Judgments

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided.

Judgment is required to determine the SSP for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.

In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.  

Due to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, including the exercise pattern of certain benefits across our portfolio of customers.  

Our products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our products and services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Changes to our estimated variable consideration were not material for the periods presented.

Contract Balances  

Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record a receivable related to revenue recognized for multi-year on-premises licenses as we have an unconditional right to invoice and receive payment in the future related to those licenses.

The opening balance of current and long-term accounts receivable, net of allowance for doubtful accounts, was $22.3 billion as of July 1, 2016.

As of June 30, 2018 and 2017, long-term accounts receivable, net of allowance for doubtful accounts, were $1.8 billion and $1.7 billion, respectively, and are included in other long-term assets in our consolidated balance sheets.

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.

Activity in the allowance for doubtful accounts was as follows:

(In millions)
Year Ended June 30,		2018			2017			2016
Balance, beginning of period	$	361		$	409		$	289
Charged to costs and other		134			58			175
Write-offs		(98	)		(106	)		(55	)
Balance, end of period	$	397		$	361		$	409

Allowance for doubtful accounts included in our consolidated balance sheets:

June 30,		2018		2017		2016
Accounts receivable, net of allowance for doubtful accounts	$	377	$	345	$	392
Other long-term assets		20		16		17
Total	$	397	$	361	$	409

Unearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include SA and cloud services. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for consulting services to be performed in the future; LinkedIn subscriptions; Office 365 subscriptions; Xbox Live subscriptions; Windows 10 post-delivery support; Dynamics business solutions; Skype prepaid credits and subscriptions; and other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service.

Refer to Note 15 – Unearned Revenue for further information, including unearned revenue by segment and changes in unearned revenue during the period.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced annually with revenue recognized upfront.

Assets Recognized from Costs to Obtain a Contract with a Customer

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets in our consolidated balance sheets.

We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include our internal sales force compensation program and certain partner sales incentive programs as we have determined annual compensation is commensurate with annual sales activities.

Cost of Revenue

Cost of Revenue

Cost of revenue includes: manufacturing and distribution costs for products sold and programs licensed; operating costs related to product support service centers and product distribution centers; costs incurred to include software on PCs sold by original equipment manufacturers (“OEM”), to drive traffic to our websites, and to acquire online advertising space; costs incurred to support and maintain Internet-based products and services, including datacenter costs and royalties; warranty costs; inventory valuation adjustments; costs associated with the delivery of consulting services; and the amortization of capitalized software development costs. Capitalized software development costs are amortized over the estimated lives of the products.

Product Warranty

Product Warranty

We provide for the estimated costs of fulfilling our obligations under 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 the country in which we do business, but generally include parts and labor over a period generally ranging from 90 days 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 reevaluate our estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary.

Research and Development

Research and Development

Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs, localization costs incurred to translate software for international markets, and the amortization of purchased software code and services content. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products.

Sales and Marketing

Sales and Marketing

Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs. Advertising costs are expensed as incurred. Advertising expense was $1.6 billion, $1.5 billion, and $1.6 billion in fiscal years 2018, 2017, and 2016, respectively.

Stock-Based Compensation

Stock-Based Compensation

Compensation cost for stock awards, which include restricted stock units (“RSUs”) and performance stock units (“PSUs”), is measured at the fair value on the grant date and recognized as expense, net of estimated forfeitures, over the related service or performance period. The fair value of stock awards is based on the quoted price of our common stock on the grant date less the present value of expected dividends not received during the vesting period. We measure the fair value of PSUs using a Monte Carlo valuation model. Compensation cost for RSUs is recognized using the straight-line method and for PSUs is recognized using the accelerated method.

Compensation expense for the employee stock purchase plan (“ESPP”) is measured as the discount the employee is entitled to upon purchase and is recognized in the period of purchase.

Income Taxes

Income Taxes

Income tax expense includes U.S. and international income taxes, and interest and penalties on uncertain tax positions. Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. Deferred tax assets are reported net of a valuation allowance when it is more likely than not that a tax benefit will not be realized. All deferred income taxes are classified as long-term in our consolidated balance sheets.

Recent Tax Legislation

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect our business. Refer to Note 13 – Income Taxes for further discussion.

As a result of the TCJA, we have recast certain prior period income tax liabilities in our consolidated balance sheets to conform to the current period presentation. Previously reported balances were impacted as follows:

(In millions)	As Previously Reported		As Adjusted
Balance Sheets				June 30, 2017
Long-term income taxes	$	0	$	13,485
Other long-term liabilities		17,034		3,549

These adjustments had no impact in our consolidated income statements or net cash from or used in operating, financing, or investing in our consolidated cash flows statements.

Fair Value Measurements

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 in active markets. Our Level 1 non-derivative investments primarily include U.S. government securities, common and preferred stock, and 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, credit spreads, foreign exchange rates, and forward and spot prices for currencies. Our Level 2 non-derivative investments consist primarily of corporate notes and bonds, foreign government bonds, mortgage- and asset-backed securities, commercial paper, certificates of deposit, and U.S. agency securities. 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 and liabilities primarily comprise investments in common and preferred stock, and goodwill and intangible assets, when they are recorded at fair value due to an impairment charge. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities.

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.

Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.

Investments

Investments

We consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. All cash equivalents and short-term investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in market value, excluding other-than-temporary impairments, are reflected in OCI.

Equity and other investments classified as long-term include both debt and equity instruments. Debt and publicly-traded equity securities are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in the market value of available-for-sale securities, excluding other-than-temporary impairments, are reflected in OCI. Common and preferred stock and other investments that are restricted for more than one year or are not publicly traded are recorded at cost or using the equity method.

We lend certain fixed-income and equity securities to increase investment returns. These transactions are accounted for as secured borrowings and the loaned securities continue to be carried as investments in our consolidated balance sheets. Cash and/or security interests are received as collateral for the loaned securities with the amount determined based upon the underlying security lent and the creditworthiness of the borrower. Cash received is recorded as an asset with a corresponding liability.

Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Fair value is calculated based on publicly available market information or other estimates determined by management. We employ a systematic methodology on a quarterly basis that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, the duration and extent to which the fair value is less than cost, and for equity securities, our intent and ability to hold, or plans to sell, the investment. For fixed-income securities, we also evaluate whether we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery. We also consider specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense), net and a new cost basis in the investment is established.

Derivatives

Derivatives

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 derivative instruments designated as fair value hedges, the gains (losses) are recognized in earnings in the periods of change together with the offsetting losses (gains) on the hedged items 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 gains (losses) on the derivatives is initially reported as a component of 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), net.

Inventories

Inventories

Inventories are stated at average cost, subject to the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. Net realizable value is the estimated selling price less estimated costs of completion, disposal, and transportation. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to cost of revenue.

Property and Equipment

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation, and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: computer software developed or acquired for internal use, three to seven years; computer equipment, two to three years; buildings and improvements, five to 15 years; leasehold improvements, three to 20 years; and furniture and equipment, one to 10 years. Land is not depreciated.

Leases

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our consolidated balance sheets.  

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Goodwill

Goodwill

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1 for us) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

Intangible Assets

Intangible Assets

All of our intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of benefit, ranging from one to 20 years. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.

Recent Accounting Guidance

Recent Accounting Guidance

Recently Adopted Accounting Guidance

Comprehensive Income – Reclassification of Certain Tax Effects

In February 2018, the Financial Accounting Standards Board (“FASB”) issued new guidance to allow a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the TCJA. In the second quarter of fiscal year 2018, we remeasured our deferred taxes related to unrealized gains on our investment balances using the reduced tax rate. As required by GAAP, we recognized the net tax benefit in the provision for income taxes in our consolidated income statements, even though the deferred taxes were initially recognized in AOCI, which resulted in stranded tax effects. We elected to early adopt the standard effective April 1, 2018 and reclassified a $42 million net tax benefit from AOCI to retained earnings in our consolidated balance sheets. Adoption of the standard had no impact to our consolidated income statements or cash flows statements.

Leases

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We are also required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available.

We elected to early adopt the standard effective July 1, 2017 concurrent with our adoption of the new standard related to revenue recognition. We elected the available practical expedients and implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

The standard had a material impact in our consolidated balance sheets, but did not have an impact in our consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. Adoption of the standard required us to restate certain previously reported results, including the recognition of additional ROU assets and lease liabilities for operating leases. Refer to Impacts to Previously Reported Results below for the impact of adoption of the standard in our consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued a new standard related to revenue recognition. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

We elected to early adopt the standard effective July 1, 2017, using the full retrospective method, which required us to restate each prior reporting period presented. We implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

The most significant impact of the standard relates to our accounting for software license revenue. Specifically, for Windows 10, we recognize revenue predominantly at the time of billing and delivery rather than ratably over the life of the related device. For certain multi-year commercial software subscriptions that include both distinct software licenses and SA, we recognize license revenue at the time of contract execution rather than over the subscription period. Due to the complexity of certain of our commercial license subscription contracts, the actual revenue recognition treatment required under the standard depends on contract-specific terms and in some instances may vary from recognition at the time of billing. Revenue recognition related to our hardware, cloud offerings (such as Office 365), LinkedIn, and professional services remains substantially unchanged.

Adoption of the standard using the full retrospective method required us to restate certain previously reported results, including the recognition of additional revenue and an increase in the provision for income taxes, primarily due to the net change in Windows 10 revenue recognition. In addition, adoption of the standard resulted in an increase in accounts receivable and other current and long-term assets, driven by unbilled receivables from upfront recognition of revenue for certain multi-year commercial software subscriptions that include both distinct software licenses and SA; a reduction of unearned revenue, driven by the upfront recognition of license revenue from Windows 10 and certain multi-year commercial software subscriptions; and an increase in deferred income taxes, driven by the upfront recognition of revenue. Refer to Impacts to Previously Reported Results below for the impact of adoption of the standard in our consolidated financial statements.

Impacts to Previously Reported Results

Adoption of the standards related to revenue recognition and leases impacted our previously reported results as follows:

(In millions, except per share amounts)	As Previously Reported		New Revenue Standard Adjustment		As Restated
Income Statements
Year Ended June 30, 2017
Revenue	$	89,950	$	6,621	$	96,571
Provision for income taxes		1,945		2,467		4,412
Net income		21,204		4,285		25,489
Diluted earnings per share		2.71		0.54		3.25
Year Ended June 30, 2016
Revenue	$	85,320	$	5,834	$	91,154
Provision for income taxes		2,953		2,147		5,100
Net income		16,798		3,741		20,539
Diluted earnings per share		2.10		0.46		2.56

(In millions)	As Previously Reported		New Revenue Standard Adjustment			New Lease Standard Adjustment		As Restated
Balance Sheets
June 30, 2017
Accounts receivable, net of allowance for doubtful accounts	$	19,792	$	2,639		$	0	$	22,431
Operating lease right-of-use assets		0		0			6,555		6,555
Other current and long-term assets		11,147		32			0		11,179
Unearned revenue		44,479		(17,823	)		0		26,656
Deferred income taxes		531		5,203			0		5,734
Operating lease liabilities		0		0			5,372		5,372
Other current and long-term liabilities		23,464		(26	)		1,183		24,621
Stockholders' equity		72,394		15,317			0		87,711

Adoption of the standards related to revenue recognition and leases had no impact to cash from or used in operating, financing, or investing in our consolidated cash flows statements.

Recent Accounting Guidance Not Yet Adopted

Financial Instruments – Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued new guidance related to accounting for hedging activities. This guidance expands strategies that qualify for hedge accounting, changes how many hedging relationships are presented in the financial statements, and simplifies the application of hedge accounting in certain situations. The standard will be effective for us beginning July 1, 2019, with early adoption permitted for any interim or annual period before the effective date. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of this standard in our consolidated financial statements, including accounting policies, processes, and systems.

Income Taxes – Intra-Entity Asset Transfers

In October 2016, the FASB issued new guidance requiring an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party. This guidance is effective for us beginning July 1, 2018, with early adoption permitted beginning July 1, 2017. We plan to adopt the guidance effective July 1, 2018. Adoption of the guidance will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. We currently expect a net cumulative-effect adjustment of approximately $550 million, which will reverse the deferral of income tax consequences from past intra-entity transfers involving assets other than inventory and new deferred tax assets for amounts not recognized under current GAAP, partially offset by a U.S. deferred tax liability related to global intangible low-taxed income (“GILTI”). Adoption of the standard is expected to result in an increase in long-term deferred tax assets of $2.8 billion, an increase in long-term deferred tax liabilities of $2.1 billion, and a reduction to other current assets of $150 million. As a result of the TCJA, we are continuing to evaluate the impact of this standard in our consolidated financial statements, including accounting policies, processes, and systems.

Financial Instruments – Credit Losses

In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The standard will be effective for us beginning July 1, 2020, with early adoption permitted beginning July 1, 2019. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align our credit loss methodology with the new standard. We are currently evaluating the impact of this standard in our consolidated financial statements, including accounting policies, processes, and systems.  

Financial Instruments – Recognition, Measurement, Presentation, and Disclosure

In January 2016, the FASB issued a new standard related to certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most prominent among the changes in the standard is the requirement for changes in the fair value of our equity investments, with certain exceptions, to be recognized through net income rather than OCI. Under the standard, equity investments that do not have a readily determinable fair value are eligible for the measurement alternative. Using the measurement alternative, investments without readily determinable fair values will be valued at cost, with adjustments for changes in price or impairments reflected through net income.

The standard will be effective for us beginning July 1, 2018. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment from AOCI to retained earnings as of the effective date. A cumulative-effect adjustment will capture any previously held unrealized gains and losses held in AOCI related to our equity investments carried at fair value as well as the impact of recording the fair value of certain equity investments carried at cost.In preparation for adoption of this standard, we have implemented internal controls to align with the new standard and have concluded that we will elect the measurement alternative for equity investments that do not have readily determinable fair values.

The impact in our consolidated balance sheets upon adoption will not be material. Adoption of the standard will have no impact to cash from or used in operating, financing or investing in our consolidated cash flows statements.

Earnings Per Share

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS 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 and stock awards.

Segment Reporting

Revenue and costs are generally directly attributed to our segments. However, due to the integrated structure of our business, certain revenue recognized and costs incurred by one segment may benefit other segments. Revenue from certain contracts is allocated among the segments based on the relative value of the underlying products and services, which can include allocation based on actual prices charged, prices when sold separately, or estimated costs plus a profit margin. Cost of revenue is allocated in certain cases based on a relative revenue methodology. Operating expenses that are allocated primarily include those relating to marketing of products and services from which multiple segments benefit and are generally allocated based on relative gross margin.

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: legal, including settlements and fines; information technology; human resources; finance; excise taxes; field selling; 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 corporate-level activity is not allocated to our segments, including impairment and restructuring expenses.

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; 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.

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ACCOUNTING POLICIES (Tables)

12 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Allowance for Doubtful Accounts

Activity in the allowance for doubtful accounts was as follows:

(In millions)
Year Ended June 30,		2018			2017			2016
Balance, beginning of period	$	361		$	409		$	289
Charged to costs and other		134			58			175
Write-offs		(98	)		(106	)		(55	)
Balance, end of period	$	397		$	361		$	409

Allowance for doubtful accounts included in our consolidated balance sheets:

June 30,		2018		2017		2016
Accounts receivable, net of allowance for doubtful accounts	$	377	$	345	$	392
Other long-term assets		20		16		17
Total	$	397	$	361	$	409

Impact of Tax Cuts and Jobs Act on Previously Reported Balances of Prior Period Income Tax Liabilities

As a result of the TCJA, we have recast certain prior period income tax liabilities in our consolidated balance sheets to conform to the current period presentation. Previously reported balances were impacted as follows:

(In millions)	As Previously Reported		As Adjusted
Balance Sheets				June 30, 2017
Long-term income taxes	$	0	$	13,485
Other long-term liabilities		17,034		3,549

Impacts of Adoption of Standards Related to Revenue Recognition and Leases to Previously Reported Results

Adoption of the standards related to revenue recognition and leases impacted our previously reported results as follows:

(In millions, except per share amounts)	As Previously Reported		New Revenue Standard Adjustment		As Restated
Income Statements
Year Ended June 30, 2017
Revenue	$	89,950	$	6,621	$	96,571
Provision for income taxes		1,945		2,467		4,412
Net income		21,204		4,285		25,489
Diluted earnings per share		2.71		0.54		3.25
Year Ended June 30, 2016
Revenue	$	85,320	$	5,834	$	91,154
Provision for income taxes		2,953		2,147		5,100
Net income		16,798		3,741		20,539
Diluted earnings per share		2.10		0.46		2.56

(In millions)	As Previously Reported		New Revenue Standard Adjustment			New Lease Standard Adjustment		As Restated
Balance Sheets
June 30, 2017
Accounts receivable, net of allowance for doubtful accounts	$	19,792	$	2,639		$	0	$	22,431
Operating lease right-of-use assets		0		0			6,555		6,555
Other current and long-term assets		11,147		32			0		11,179
Unearned revenue		44,479		(17,823	)		0		26,656
Deferred income taxes		531		5,203			0		5,734
Operating lease liabilities		0		0			5,372		5,372
Other current and long-term liabilities		23,464		(26	)		1,183		24,621
Stockholders' equity		72,394		15,317			0		87,711

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EARNINGS PER SHARE (Tables)

12 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

Basic and Diluted Earnings Per Share

The components of basic and diluted EPS were as follows:

(In millions, except earnings per share)
Year Ended June 30,	2018		2017		2016
Net income available for common shareholders (A)	$	16,571	$	25,489	$	20,539
Weighted average outstanding shares of common stock (B)		7,700		7,746		7,925
Dilutive effect of stock-based awards		94		86		88
Common stock and common stock equivalents (C)		7,794		7,832		8,013
Earnings Per Share
Basic (A/B)	$	2.15	$	3.29	$	2.59
Diluted (A/C)	$	2.13	$	3.25	$	2.56

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OTHER INCOME (EXPENSE), NET (Tables)

12 Months Ended

Jun. 30, 2018

Other Income And Expenses [Abstract]

Components of Other Income (Expense), Net

The components of other income (expense), net were as follows:

(In millions)
Year Ended June 30,	2018			2017			2016
Dividends and interest income	$	2,214		$	1,387		$	903
Interest expense		(2,733	)		(2,222	)		(1,243	)
Net recognized gains on investments		2,399			2,583			668
Net losses on derivatives		(187	)		(510	)		(443	)
Net losses on foreign currency remeasurements		(218	)		(111	)		(129	)
Other, net		(59	)		(251	)		(195	)
Total	$	1,416		$	876		$	(439	)

Net Recognized Gains (Losses) on Investments

Following are details of net recognized gains (losses) on investments during the periods reported:

(In millions)
Year Ended June 30,	2018			2017			2016
Other-than-temporary impairments of investments	$	(47	)	$	(55	)	$	(322	)
Realized gains from sales of available-for-sale securities		3,478			3,064			1,376
Realized losses from sales of available-for-sale securities		(1,032	)		(426	)		(386	)
Total	$	2,399		$	2,583		$	668

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INVESTMENTS (Tables)

12 Months Ended

Jun. 30, 2018

Investments Debt And Equity Securities [Abstract]

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
June 30, 2018
Cash	$	3,942	$	0	$	0		$	3,942	$	3,942	$	0	$	0
Mutual funds		246		0		0			246		246		0		0
Commercial paper		2,513		0		0			2,513		2,215		298		0
Certificates of deposit		2,058		0		0			2,058		1,865		193		0
U.S. government and agency securities		109,862		62		(1,167	)		108,757		3,678		105,079		0
Foreign government bonds		5,182		1		(10	)		5,173		0		5,173		0
Mortgage- and asset-backed securities		3,868		4		(13	)		3,859		0		3,859		0
Corporate notes and bonds		6,947		21		(56	)		6,912		0		6,912		0
Municipal securities		271		37		(1	)		307		0		307		0
Common and preferred stock		1,220		95		(10	)		1,305		0		0		1,305
Other investments		558		0		0			558		0		1		557
Total	$	136,667	$	220	$	(1,257	)	$	135,630	$	11,946	$	121,822	$	1,862

(In millions)	Cost Basis		Unrealized Gains		Unrealized Losses			Recorded Basis		Cash and Cash Equivalents		Short-term Investments		Equity and Other Investments
June 30, 2017
Cash	$	3,624	$	0	$	0		$	3,624	$	3,624	$	0	$	0
Mutual funds		1,478		0		0			1,478		1,478		0		0
Commercial paper		319		0		0			319		69		250		0
Certificates of deposit		1,358		0		0			1,358		972		386		0
U.S. government and agency securities		112,119		85		(360	)		111,844		16		111,828		0
Foreign government bonds		5,276		2		(13	)		5,265		1,504		3,761		0
Mortgage- and asset-backed securities		3,921		14		(4	)		3,931		0		3,931		0
Corporate notes and bonds		4,786		61		(12	)		4,835		0		4,835		0
Municipal securities		284		43		0			327		0		327		0
Common and preferred stock		2,472		3,062		(34	)		5,500		0		0		5,500
Other investments		523		0		0			523		0		0		523
Total	$	136,160	$	3,267	$	(423	)	$	139,004	$	7,663	$	125,318	$	6,023

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
June 30, 2018
U.S. government and agency securities	$	82,352	$	(1,064	)	$	4,459	$	(103	)	$	86,811	$	(1,167	)
Foreign government bonds		3,457		(7	)		13		(3	)		3,470		(10	)
Mortgage- and asset-backed securities		2,072		(9	)		96		(4	)		2,168		(13	)
Corporate notes and bonds		3,111		(43	)		301		(13	)		3,412		(56	)
Municipal securities		45		(1	)		0		0			45		(1	)
Common and preferred stock		75		(6	)		8		(4	)		83		(10	)
Total	$	91,112	$	(1,130	)	$	4,877	$	(127	)	$	95,989	$	(1,257	)

	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, 2017
U.S. government and agency securities	$	87,558	$	(348	)	$	371	$	(12	)	$	87,929	$	(360	)
Foreign government bonds		4,006		(2	)		23		(11	)		4,029		(13	)
Mortgage- and asset-backed securities		1,068		(3	)		198		(1	)		1,266		(4	)
Corporate notes and bonds		669		(8	)		177		(4	)		846		(12	)
Common and preferred stock		69		(6	)		148		(28	)		217		(34	)
Total	$	93,370	$	(367	)	$	917	$	(56	)	$	94,287	$	(423	)

Debt Investment Maturities

Debt Investment Maturities

(In millions)	Cost Basis		Estimated Fair Value
June 30, 2018
Due in one year or less	$	31,590	$	31,451
Due after one year through five years		76,422		75,810
Due after five years through 10 years		21,765		21,396
Due after 10 years		924		922
Total	$	130,701	$	129,579

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DERIVATIVES (Tables)

12 Months Ended

Jun. 30, 2018

Fair Values of Derivative Instruments

The following table presents the fair values of derivative instruments designated as hedging instruments (“designated hedge derivatives”) and not designated as hedging instruments (“non-designated hedge derivatives”). 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:

		Assets															Liabilities
(In millions)	Short-term Investments			Other Current Assets				Equity and Other Investments			Other Long-term Assets				Other Current Liabilities				Other Long-term Liabilities
June 30, 2018
Non-designated Hedge Derivatives
Foreign exchange contracts	$	10			$	221			$	0		$	25			$	(193	)		$	(4	)
Equity contracts		2				0				0			0				(7	)			0
Interest rate contracts		11				0				0			0				(2	)			0
Credit contracts		0				0				0			0				(1	)			0
Total	$	23			$	221			$	0		$	25			$	(203	)		$	(4	)
Designated Hedge Derivatives
Foreign exchange contracts	$	95			$	174			$	0		$	0			$	0			$	0
Equity contracts		0				0				0			0				0				0
Total	$	95			$	174			$	0		$	0			$	0			$	0
Total gross amounts of derivatives	$	118			$	395			$	0		$	25			$	(203	)		$	(4	)
Gross derivatives either offset or subject to an enforceable master netting agreement	$	113			$	395			$	0		$	25			$	(203	)		$	(4	)
Gross amounts of derivatives offset on the balance sheet		(14	)			(135	)			0			(3	)			150				3
Net amounts presented on the balance sheet		99				260				0			22				(53	)			(1	)
Gross amounts of derivatives not offset on the balance sheet		0				0				0			0				0				0
Cash collateral received		0				0				0			0				(235	)			0
Net amount	$	99			$	260			$	0		$	22			$	(288	)		$	(1	)

	Assets															Liabilities
(In millions)	Short-term Investments			Other Current Assets				Equity and Other Investments				Other Long-term Assets				Other Current Liabilities				Other Long-term Liabilities
June 30, 2017
Non-designated Hedge Derivatives
Foreign exchange contracts	$	9			$	203			$	0			$	6			$	(134	)		$	(8	)
Equity contracts		3				0				0				0				(6	)			0
Interest rate contracts		3				0				0				0				(7	)			0
Credit contracts		5				0				0				0				(1	)			0
Total	$	20			$	203			$	0			$	6			$	(148	)		$	(8	)
Designated Hedge Derivatives
Foreign exchange contracts	$	80			$	133			$	0			$	0			$	(3	)		$	0
Equity contracts		0				0				67				0				(186	)			0
Total	$	80			$	133			$	67			$	0			$	(189	)		$	0
Total gross amounts of derivatives	$	100			$	336			$	67			$	6			$	(337	)		$	(8	)
Gross derivatives either offset or subject to an enforceable master netting agreement	$	100			$	336			$	67			$	6			$	(334	)		$	(8	)
Gross amounts of derivatives offset on the balance sheet		(20	)			(132	)			(67	)			(8	)			221				7
Net amounts presented on the balance sheet		80				204				0				(2	)			(113	)			(1	)
Gross amounts of derivatives not offset on the balance sheet		0				0				0				0				0				0
Cash collateral received		0				0				0				0				(228	)			0
Net amount	$	80			$	204			$	0			$	(2	)		$	(341	)		$	(1	)

Non-designated Hedge Derivatives

Gains (Losses) on Derivative Instruments

Gains (losses) from changes in fair values of derivatives that are not designated as hedges are primarily recognized in other income (expense), net. 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), net, which were immaterial for the periods presented.

(In millions)
Year Ended June 30,	2018			2017			2016
Foreign exchange contracts	$	(33	)	$	(117	)	$	(55	)
Equity contracts		(87	)		(114	)		(21	)
Interest rate contracts		(15	)		14			10
Credit contracts		(2	)		5			(1	)
Other contracts		0			(22	)		(87	)
Total	$	(137	)	$	(234	)	$	(154	)

Fair value hedging

Gains (Losses) on Derivative Instruments

We recognized in other income (expense), net the following gains (losses) on contracts designated as fair value hedges and their related hedged items:

(In millions)
Year Ended June 30,	2018			2017			2016
Foreign Exchange Contracts
Derivatives	$	25		$	441		$	(797	)
Hedged items		78			(386	)		838
Total amount of ineffectiveness	$	103		$	55		$	41
Equity Contracts
Derivatives	$	(324	)	$	(74	)	$	(76	)
Hedged items		324			74			76
Total amount of ineffectiveness	$	0		$	0		$	0
Amount of equity contracts excluded from effectiveness assessment	$	80		$	(80	)	$	(10	)

Cash flow hedging

Gains (Losses) on Derivative Instruments

We recognized the following gains (losses) on foreign exchange contracts designated as cash flow hedges:

(In millions)
Year Ended June 30,	2018			2017			2016
Effective Portion
Gains recognized in other comprehensive income (net of tax of $11, $4, and $24)	$	219		$	328		$	351
Gains reclassified from accumulated other comprehensive income (loss) into revenue		185			555			625
Amount Excluded from Effectiveness Assessment and Ineffective Portion
Losses recognized in other income (expense), net		(255	)		(389	)		(354	)

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FAIR VALUE MEASUREMENTS (Tables)

12 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

Financial Assets and Liabilities Measured at Fair Value on 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
June 30, 2018
Assets
Mutual funds	$	246	$	0	$	0	$	246	$	0		$	246
Commercial paper		0		2,513		0		2,513		0			2,513
Certificates of deposit		0		2,058		0		2,058		0			2,058
U.S. government and agency securities		107,015		1,742		0		108,757		0			108,757
Foreign government bonds		22		5,054		0		5,076		0			5,076
Mortgage- and asset-backed securities		0		3,855		0		3,855		0			3,855
Corporate notes and bonds		0		6,894		15		6,909		0			6,909
Municipal securities		0		307		0		307		0			307
Common and preferred stock		287		0		18		305		0			305
Derivatives		1		535		2		538		(152	)		386
Total	$	107,571	$	22,958	$	35	$	130,564	$	(152	)	$	130,412
Liabilities
Derivatives and other	$	1	$	206	$	0	$	207	$	(153	)	$	54

(In millions)		Level 1		Level 2		Level 3		Gross Fair Value		Netting	(a)		Net Fair Value
June 30, 2017
Assets
Mutual funds	$	1,478	$	0	$	0	$	1,478	$	0		$	1,478
Commercial paper		0		319		0		319		0			319
Certificates of deposit		0		1,358		0		1,358		0			1,358
U.S. government and agency securities		109,228		2,616		0		111,844		0			111,844
Foreign government bonds		0		5,187		0		5,187		0			5,187
Mortgage- and asset-backed securities		0		3,934		0		3,934		0			3,934
Corporate notes and bonds		0		4,829		1		4,830		0			4,830
Municipal securities		0		327		0		327		0			327
Common and preferred stock		2,414		1,994		18		4,426		0			4,426
Derivatives		1		508		0		509		(227	)		282
Total	$	113,121	$	21,072	$	19	$	134,212	$	(227	)	$	133,985
Liabilities
Derivatives and other	$	0	$	345	$	39	$	384	$	(228	)	$	156

(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 Recurring Basis to Balance Sheet Presentation

The following table reconciles the total “Net Fair Value” of assets above to the balance sheet presentation of these same assets in Note 4 – Investments.

(In millions)
June 30,		2018			2017
Net fair value of assets measured at fair value on a recurring basis	$	130,412		$	133,985
Cash		3,942			3,624
Common and preferred stock measured at fair value on a nonrecurring basis		999			1,073
Other investments measured at fair value on a nonrecurring basis		557			523
Less derivative net assets classified as other current and long-term assets		(282	)		(202	)
Other		2			1
Recorded basis of investment components	$	135,630		$	139,004

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INVENTORIES (Tables)

12 Months Ended

Jun. 30, 2018

Inventory Disclosure [Abstract]

Components of Inventories

The components of inventories were as follows:

(In millions)
June 30,	2018		2017
Raw materials	$	655	$	797
Work in process		54		145
Finished goods		1,953		1,239
Total	$	2,662	$	2,181

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PROPERTY AND EQUIPMENT (Tables)

12 Months Ended

Jun. 30, 2018

Property Plant And Equipment [Abstract]

Components of Property and Equipment

The components of property and equipment were as follows:

(In millions)
June 30,	2018			2017
Land	$	1,254		$	1,107
Buildings and improvements		20,604			16,284
Leasehold improvements		4,735			5,064
Computer equipment and software		27,633			21,414
Furniture and equipment		4,457			4,044
Total, at cost		58,683			47,913
Accumulated depreciation		(29,223	)		(24,179	)
Total, net	$	29,460		$	23,734

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BUSINESS COMBINATIONS (Tables)

12 Months Ended

Jun. 30, 2018

Acquired Intangible Assets

The components of intangible assets acquired during the periods presented were as follows:

(In millions)	Amount		Weighted Average Life		Amount		Weighted Average Life
Year Ended June 30,	2018				2017
Technology-based	$	178		4 years	$	2,265		2 years
Marketing-related		14		5 years		2,148		19 years
Contract-based		14		4 years		63		6 years
Customer-related		13		5 years		3,607		7 years
Total	$	219		5 years	$	8,083		9 years

LinkedIn Corporation

Major Classes of Assets and Liabilities to Which We Allocated the Purchase Price

The major classes of assets and liabilities to which we allocated the purchase price were as follows:  

(In millions)
Cash and cash equivalents	$	1,328
Short-term investments		2,110
Other current assets		697
Property and equipment		1,529
Intangible assets		7,887
Goodwill (a)		16,803
Short-term debt (b)		(1,323	)
Other current liabilities		(1,117	)
Deferred income taxes		(774	)
Other		(131	)
Total purchase price	$	27,009

(a) Goodwill was assigned to our Productivity and Business Processes segment. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of LinkedIn. None of the goodwill is expected to be deductible for income tax purposes.

(b) Convertible senior notes issued by LinkedIn on November 12, 2014, substantially all of which were redeemed after our acquisition of LinkedIn. The remaining $18 million of notes are not redeemable and are included in long-term debt in our consolidated balance sheets. Refer to Note 12 – Debt for further information.

Acquired Intangible Assets

Following are the details of the purchase price allocated to the intangible assets acquired:

(In millions)	Amount		Weighted Average Life
Customer-related	$	3,607		7 years
Marketing-related (trade names)		2,148		20 years
Technology-based		2,109		3 years
Contract-based		23		5 years
Fair value of intangible assets acquired	$	7,887		9 years

Revenue and Operating Loss Attributable to Acquiree, Since the Date of Acquisition

Our consolidated income statements include the following revenue and operating loss attributable to LinkedIn since the date of acquisition:

(In millions)
Year Ended June 30,		2017
Revenue	$	2,271
Operating loss		(924	)

Supplemental Consolidated Financial Results on Unaudited Pro Forma Basis, as If the Acquisition Had Been Consummated on Beginning of Period

Following are the supplemental consolidated financial results of Microsoft Corporation on an unaudited pro forma basis, as if the acquisition had been consummated on July 1, 2015:

(In millions, except earnings per share)
Year Ended June 30,		2017		2016
Revenue	$	98,291	$	94,490
Net income		25,179		19,128
Diluted earnings per share		3.21		2.38

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GOODWILL (Tables)

12 Months Ended

Jun. 30, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Carrying Amount of Goodwill

Changes in the carrying amount of goodwill were as follows:

(In millions)	June 30, 2016			Acquisitions				Other				June 30, 2017			Acquisitions			Other				June 30, 2018
Productivity and Business Processes		$	6,678		$	17,072	(a)		$	(11	)		$	23,739		$	72		$	12			$	23,823
Intelligent Cloud			5,467			49				39				5,555			164			(16	)			5,703
More Personal Computing			5,727			115				(14	)			5,828			394			(65	)			6,157
Total		$	17,872		$	17,236			$	14			$	35,122		$	630		$	(69	)		$	35,683

(a) Includes goodwill related to LinkedIn and other acquisitions. Refer to Note 9 – Business Combinations for further information.

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INTANGIBLE ASSETS (Tables)

12 Months Ended

Jun. 30, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Finite-Lived Intangible Assets

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

(In millions)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
June 30,						2018							2017
Technology-based	$	7,220	$	(5,018	)	$	2,202	$	7,765	$	(4,318	)	$	3,447
Customer-related		4,031		(1,205	)		2,826		4,045		(692	)		3,353
Marketing-related		4,006		(1,071	)		2,935		4,016		(829	)		3,187
Contract-based		679		(589	)		90		841		(722	)		119
Total	$	15,936	$	(7,883	)	$	8,053	$	16,667	$	(6,561	)	$	10,106

Acquired Intangible Assets

The components of intangible assets acquired during the periods presented were as follows:

(In millions)	Amount		Weighted Average Life		Amount		Weighted Average Life
Year Ended June 30,	2018				2017
Technology-based	$	178		4 years	$	2,265		2 years
Marketing-related		14		5 years		2,148		19 years
Contract-based		14		4 years		63		6 years
Customer-related		13		5 years		3,607		7 years
Total	$	219		5 years	$	8,083		9 years

Estimated Future Amortization Expense Related to Intangible Assets

The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2018:

(In millions)
Year Ending June 30,
2019	$	1,785
2020		1,260
2021		1,043
2022		949
2023		806
Thereafter		2,210
Total	$	8,053

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DEBT (Tables)

12 Months Ended

Jun. 30, 2018

Debt Disclosure [Abstract]

Long-term Debt

The components of our long-term debt, including the current portion, and the associated interest rates were as follows:

(In millions, except interest rates)	Face Value June 30, 2018		Face Value June 30, 2017		Stated Interest Rate	Effective Interest Rate
Notes
November 15, 2017	$	0	$	600	0.875%	1.084%
May 1, 2018		0		450	1.000%	1.106%
November 3, 2018		1,750		1,750	1.300%	1.396%
December 6, 2018		1,250		1,250	1.625%	1.824%
June 1, 2019		1,000		1,000	4.200%	4.379%
August 8, 2019		2,500		2,500	1.100%	1.203%
November 1, 2019		18		18	0.500%	0.500%
February 6, 2020		1,500		1,500	1.850%	1.952%
February 12, 2020		1,500		1,500	1.850%	1.935%
October 1, 2020		1,000		1,000	3.000%	3.137%
November 3, 2020		2,250		2,250	2.000%	2.093%
February 8, 2021		500		500	4.000%	4.082%
August 8, 2021		2,750		2,750	1.550%	1.642%
December 6, 2021 (a)		2,044		1,996	2.125%	2.233%
February 6, 2022		1,750		1,750	2.400%	2.520%
February 12, 2022		1,500		1,500	2.375%	2.466%
November 3, 2022		1,000		1,000	2.650%	2.717%
November 15, 2022		750		750	2.125%	2.239%
May 1, 2023		1,000		1,000	2.375%	2.465%
August 8, 2023		1,500		1,500	2.000%	2.101%
December 15, 2023		1,500		1,500	3.625%	3.726%
February 6, 2024		2,250		2,250	2.875%	3.041%
February 12, 2025		2,250		2,250	2.700%	2.772%
November 3, 2025		3,000		3,000	3.125%	3.176%
August 8, 2026		4,000		4,000	2.400%	2.464%
February 6, 2027		4,000		4,000	3.300%	3.383%
December 6, 2028 (a)		2,044		1,996	3.125%	3.218%
May 2, 2033 (a)		642		627	2.625%	2.690%
February 12, 2035		1,500		1,500	3.500%	3.604%
November 3, 2035		1,000		1,000	4.200%	4.260%
August 8, 2036		2,250		2,250	3.450%	3.510%
February 6, 2037		2,500		2,500	4.100%	4.152%
June 1, 2039		750		750	5.200%	5.240%
October 1, 2040		1,000		1,000	4.500%	4.567%
February 8, 2041		1,000		1,000	5.300%	5.361%
November 15, 2042		900		900	3.500%	3.571%
May 1, 2043		500		500	3.750%	3.829%
December 15, 2043		500		500	4.875%	4.918%
February 12, 2045		1,750		1,750	3.750%	3.800%
November 3, 2045		3,000		3,000	4.450%	4.492%
August 8, 2046		4,500		4,500	3.700%	3.743%
February 6, 2047		3,000		3,000	4.250%	4.287%
February 12, 2055		2,250		2,250	4.000%	4.063%
November 3, 2055		1,000		1,000	4.750%	4.782%
August 8, 2056		2,250		2,250	3.950%	4.033%
February 6, 2057		2,000		2,000	4.500%	4.528%
Total	$	76,898	$	77,837

(a) Euro-denominated debt securities.

Maturities of Long-term Debt

Maturities of our long-term debt for each of the next five years and thereafter are as follows:

(In millions)
Year Ending June 30,
2019	$	4,000
2020		5,518
2021		3,750
2022		8,044
2023		2,750
Thereafter		52,836
Total	$	76,898

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INCOME TAXES (Tables)

12 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

Provision for Income Taxes

The components of the provision for income taxes were as follows:

(In millions)
Year Ended June 30,	2018			2017			2016
Current Taxes
U.S. federal	$	19,764		$	2,739		$	545
U.S. state and local		934			30			136
Foreign		4,348			2,472			1,940
Current taxes	$	25,046		$	5,241		$	2,621
Deferred Taxes
U.S. federal	$	(4,292	)	$	(554	)	$	1,919
U.S. state and local		(458	)		269			111
Foreign		(393	)		(544	)		449
Deferred taxes	$	(5,143	)	$	(829	)	$	2,479
Provision for income taxes	$	19,903		$	4,412		$	5,100

Income (Loss) Before Income Taxes

U.S. and foreign components of income before income taxes were as follows:

(In millions)
Year Ended June 30,	2018		2017		2016
U.S.	$	11,527	$	6,843	$	5,125
Foreign		24,947		23,058		20,514
Income before income taxes	$	36,474	$	29,901	$	25,639

Difference Between Income Taxes Computed at Federal Statutory Rate and Provision for Income Taxes

Effective Tax Rate

The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate were as follows:

Year Ended June 30,	2018		2017		2016
Federal statutory rate		28.1%		35.0%		35.0%
Effect of:
Foreign earnings taxed at lower rates		(7.8)%		(11.6)%		(14.5)%
Impacts of TCJA		37.7%		0%		0%
Phone business losses		0%		(5.7)%		1.0%
Excess tax benefits relating to stock-based compensation		(2.5)%		(2.1)%		(1.6)%
Interest, net		1.2%		1.4%		0.9%
Other reconciling items, net		(2.1)%		(2.2)%		(0.9)%
Effective rate		54.6%		14.8%		19.9%

Deferred Income Tax Assets and Liabilities

The components of the deferred income tax assets and liabilities were as follows:  

(In millions)
June 30,	2018				2017
Deferred Income Tax Assets
Stock-based compensation expense	$		460		$		777
Accruals, reserves, and other expenses			1,832				1,859
Loss and credit carryforwards			3,369				4,809
Depreciation and amortization			351				53
Other			56				255
Deferred income tax assets			6,068				7,753
Less valuation allowance			(3,186	)			(3,310	)
Deferred income tax assets, net of valuation allowance	$		2,882		$		4,443
Deferred Income Tax Liabilities
Foreign earnings	$	0			$	(1,134		)
Unrealized gain on investments and debt		0				(1,384		)
Unearned revenue		(639		)		(5,760		)
Depreciation and amortization		(1,103		)		(1,630		)
Other		(312		)		(21		)
Deferred income tax liabilities	$	(2,054		)	$	(9,929		)
Net deferred income tax assets (liabilities)	$	828			$	(5,486		)
Reported As
Other long-term assets	$	1,369			$	248
Long-term deferred income tax liabilities		(541		)		(5,734		)
Net deferred income tax assets (liabilities)	$	828			$	(5,486		)

Changes in Unrecognized Tax Benefits

(In millions)
Year Ended June 30,	2018			2017			2016
Balance, beginning of year	$	11,737		$	10,164		$	9,599
Decreases related to settlements		(193	)		(4	)		(201	)
Increases for tax positions related to the current year		1,445			1,277			1,086
Increases for tax positions related to prior years		151			397			115
Decreases for tax positions related to prior years		(1,176	)		(49	)		(317	)
Decreases due to lapsed statutes of limitations		(3	)		(48	)		(118	)
Balance, end of year	$	11,961		$	11,737		$	10,164

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UNEARNED REVENUE (Tables)

12 Months Ended

Jun. 30, 2018

Revenue From Contract With Customer [Abstract]

Unearned Revenue by Segment

Unearned revenue by segment was as follows:

(In millions)
June 30,	2018		2017
Productivity and Business Processes	$	14,864	$	12,692
Intelligent Cloud		14,706		11,152
More Personal Computing		3,150		2,812
Total	$	32,720	$	26,656

Changes in Unearned Revenue

(In millions)
Year Ended June 30, 2018
Balance, beginning of period	$	26,656
Deferral of revenue		61,142
Recognition of unearned revenue		(55,078	)
Balance, end of period	$	32,720

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LEASES (Tables)

12 Months Ended

Jun. 30, 2018

Leases [Abstract]

Components of Lease Expense

The components of lease expense were as follows:

(In millions)
Year Ended June 30,	2018			2017		2016
Operating lease cost	$	1,585	$	1,412	$	936
Finance lease cost:
Amortization of right-of-use assets	$	243	$	104	$	28
Interest on lease liabilities		175		68		28
Total finance lease cost	$	418	$	172	$	56

Supplemental Cash Flow Information Related to Leases

Supplemental cash flow information related to leases was as follows:

(In millions)
Year Ended June 30,	2018			2017		2016
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,522	$	1,157	$	936
Operating cash flows from finance leases		175		68		28
Financing cash flows from finance leases		144		46		6
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		1,571		1,270		1,062
Finance leases		1,933		1,773		413

Supplemental Balance Sheet Information Related to Leases

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)
June 30,	2018			2017
Operating Leases
Operating lease right-of-use assets	$	6,686		$	6,555
Other current liabilities	$	1,399		$	1,423
Operating lease liabilities		5,568			5,372
Total operating lease liabilities	$	6,967		$	6,795
Finance Leases
Property and equipment, gross	$	4,543		$	2,658
Accumulated depreciation		(404	)		(161	)
Property and equipment, net	$	4,139		$	2,497
Other current liabilities	$	176		$	113
Other long-term liabilities		4,125			2,425
Total finance lease liabilities	$	4,301		$	2,538
Weighted Average Remaining Lease Term
Operating leases		7 years			7 years
Finance leases		13 years			13 years
Weighted Average Discount Rate
Operating leases		2.7%			2.5%
Finance leases		5.2%			4.7%

Maturities of Lease Liabilities

Maturities of lease liabilities were as follows:

(In millions)
Year Ending June 30,	Operating Leases			Finance Leases
2019	$	1,492		$	386
2020		1,347			393
2021		1,086			401
2022		902			408
2023		721			410
Thereafter		2,157			4,036
Total lease payments		7,705			6,034
Less imputed interest		(738	)		(1,733	)
Total	$	6,967		$	4,301

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STOCKHOLDERS' EQUITY (Tables)

12 Months Ended

Jun. 30, 2018

Equity [Abstract]

Shares of Common Stock Outstanding

Shares of common stock outstanding were as follows:

(In millions)
Year Ended June 30,	2018			2017			2016
Balance, beginning of year		7,708			7,808			8,027
Issued		68			70			75
Repurchased		(99	)		(170	)		(294	)
Balance, end of year		7,677			7,708			7,808

Share Repurchases

We repurchased the following shares of common stock under the share repurchase programs:

(In millions)	Shares		Amount		Shares		Amount		Shares		Amount
Year Ended June 30,	2018				2017				2016
First Quarter		22	$	1,600		63	$	3,550		89	$	4,000
Second Quarter		22		1,800		59		3,533		66		3,600
Third Quarter		34		3,100		25		1,600		69		3,600
Fourth Quarter		21		2,100		23		1,600		70		3,600
Total		99	$	8,600		170	$	10,283		294	$	14,800

Dividends Declared

Our Board of Directors declared the following dividends:

Declaration Date	Dividend Per Share			Record Date		Amount			Payment Date
Fiscal Year 2018						(in millions)
September 19, 2017		$	0.42		November 16, 2017		$	3,238		December 14, 2017
November 29, 2017			0.42		February 15, 2018			3,232		March 8, 2018
March 12, 2018			0.42		May 17, 2018			3,226		June 14, 2018
June 13, 2018			0.42		August 16, 2018			3,224		September 13, 2018
Fiscal Year 2017
September 20, 2016		$	0.39		November 17, 2016		$	3,024		December 8, 2016
November 30, 2016			0.39		February 16, 2017			3,012		March 9, 2017
March 14, 2017			0.39		May 18, 2017			3,009		June 8, 2017
June 13, 2017			0.39		August 17, 2017			3,003		September 14, 2017

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables)

12 Months Ended

Jun. 30, 2018

Equity [Abstract]

Summary of Changes in Accumulated Other Comprehensive Income (Loss) by Component

The following table summarizes the changes in accumulated other comprehensive income (loss) by component

(In millions)
Year Ended June 30,	2018			2017			2016
Derivatives
Balance, beginning of period	$	134		$	352		$	590
Unrealized gains, net of tax of $11, $4, and $24		218			328			351
Reclassification adjustments for gains included in revenue		(185	)		(555	)		(625	)
Tax expense included in provision for income taxes		6			9			36
Amounts reclassified from accumulated other comprehensive income		(179	)		(546	)		(589	)
Net change related to derivatives, net of tax of $5, $(5), and $(12)		39			(218	)		(238	)
Balance, end of period	$	173		$	134		$	352
Investments
Balance, beginning of period	$	1,825		$	2,941		$	3,169
Unrealized gains (losses), net of tax of $(427), $267, and $120		(1,146	)		517			219
Reclassification adjustments for gains included in other income (expense), net		(2,309	)		(2,513	)		(688	)
Tax expense included in provision for income taxes		738			880			241
Amounts reclassified from accumulated other comprehensive income		(1,571	)		(1,633	)		(447	)
Net change related to investments, net of tax of $(1,165), $(613), and $(121)		(2,717	)		(1,116	)		(228	)
Balance, end of period	$	(892	)	$	1,825		$	2,941
Translation Adjustments and Other
Balance, beginning of period	$	(1,332	)	$	(1,499	)	$	(1,237	)
Translation adjustments and other, net of tax effects of $0, $9, and $(33)		(178	)		167			(262	)
Balance, end of period	$	(1,510	)	$	(1,332	)	$	(1,499	)
Cumulative effect of accounting change		42			0			0
Accumulated other comprehensive income (loss), end of period	$	(2,187	)	$	627		$	1,794

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EMPLOYEE STOCK AND SAVINGS PLANS (Tables)

12 Months Ended

Jun. 30, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation Expense and Related Income Tax Benefits

Stock-based compensation expense and related income tax benefits were as follows:

(In millions)
Year Ended June 30,	2018		2017		2016
Stock-based compensation expense	$	3,940	$	3,266	$	2,668
Income tax benefits related to stock-based compensation		823		1,066		882

Assumptions Used in Estimating the Fair Value of Stock Award Grants

The fair value of stock awards was estimated on the date of grant using the following assumptions:

Year Ended June 30,	2018		2017		2016
Dividends per share (quarterly amounts)		$0.39 - $0.42		$0.36 - $0.39		$0.31 - $0.36
Interest rates		1.7% - 2.9%		1.2% - 2.2%		1.1% - 1.8%

Stock Plan Activity

During fiscal year 2018, the following activity occurred under our stock plans:

Shares			Weighted Average Grant-Date Fair Value
(In millions)
Stock Awards
Nonvested balance, beginning of year	201		$	46.32
Granted (a)	70			75.88
Vested	(80	)		45.74
Forfeited	(17	)		53.41
Nonvested balance, end of year	174			57.85

(a) Includes 3 million, 2 million, and 1 million of PSUs granted at target and performance adjustments above target levels for fiscal years 2018, 2017, and 2016, respectively.

Employee Purchased Shares

Employees purchased the following shares during the periods presented:

(Shares in millions)
Year Ended June 30,	2018		2017		2016
Shares purchased		13		13		15
Average price per share	$	76.40	$	56.36	$	44.83

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SEGMENT INFORMATION AND GEOGRAPHIC DATA (Tables)

12 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Segment Revenue

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

(In millions)
Year Ended June 30,		2018		2017			2016
Revenue
Productivity and Business Processes	$	35,865	$	29,870		$	25,792
Intelligent Cloud		32,219		27,407			24,952
More Personal Computing		42,276		39,294			40,410
Total	$	110,360	$	96,571		$	91,154
Operating Income (Loss)
Productivity and Business Processes	$	12,924	$	11,389		$	11,756
Intelligent Cloud		11,524		9,127			9,249
More Personal Computing		10,610		8,815			6,183
Corporate and Other		0		(306	)		(1,110	)
Total	$	35,058	$	29,025		$	26,078

Segment Operating Income (Loss)

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

(In millions)
Year Ended June 30,		2018		2017			2016
Revenue
Productivity and Business Processes	$	35,865	$	29,870		$	25,792
Intelligent Cloud		32,219		27,407			24,952
More Personal Computing		42,276		39,294			40,410
Total	$	110,360	$	96,571		$	91,154
Operating Income (Loss)
Productivity and Business Processes	$	12,924	$	11,389		$	11,756
Intelligent Cloud		11,524		9,127			9,249
More Personal Computing		10,610		8,815			6,183
Corporate and Other		0		(306	)		(1,110	)
Total	$	35,058	$	29,025		$	26,078

Revenue Classified by Major Geographic Areas

Revenue, classified by the major geographic areas in which our customers are located, was as follows:

(In millions)
Year Ended June 30,	2018		2017		2016
United States (a)	$	55,926	$	51,078	$	46,416
Other countries		54,434		45,493		44,738
Total	$	110,360	$	96,571	$	91,154

(a) Includes billings to OEMs and certain multinational organizations because of the nature of these businesses and the impracticability of determining the geographic source of the revenue.

Revenue Classified by Significant Product and Service Offerings

Revenue from external customers, classified by significant product and service offerings, was as follows:

(In millions)
Year Ended June 30,	2018		2017		2016
Office products and cloud services	$	28,316	$	25,573	$	23,868
Server products and cloud services		26,129		21,649		19,062
Windows		19,518		18,593		17,548
Gaming		10,353		9,051		9,202
Search advertising		7,012		6,219		5,428
Enterprise Services		5,846		5,542		5,659
Devices		5,134		5,062		7,888
LinkedIn		5,259		2,271		0
Other		2,793		2,611		2,499
Total	$	110,360	$	96,571	$	91,154

Our commercial cloud revenue, which primarily comprises Office 365 commercial, Azure, Dynamics 365, and other cloud properties, was $23.2 billion, $14.9 billion, and $9.5 billion in fiscal years 2018, 2017, and 2016, respectively. These amounts are primarily included in Office products and services and server products and cloud services in the table above.

Long-Lived Assets, Excluding Financial Instruments and Tax Assets, Classified by Location of Controlling Statutory Company

Long-lived assets, excluding financial instruments and tax assets, classified by the location of the controlling statutory company and with countries over 10% of the total shown separately, were as follows:

(In millions)
June 30,	2018		2017		2016
United States	$	44,501	$	42,730	$	25,145
Ireland		12,843		12,889		2,099
Luxembourg		6,856		6,854		6,868
Other countries		15,682		13,044		11,047
Total	$	79,882	$	75,517	$	45,159

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QUARTERLY INFORMATION (UNAUDITED) (Tables)

12 Months Ended

Jun. 30, 2018

Quarterly Financial Information Disclosure [Abstract]

Quarterly Information (Unaudited)

(In millions, except per share amounts)
Quarter Ended	September 30		December 31			March 31		June 30		Total
Fiscal Year 2018
Revenue	$	24,538	$	28,918		$	26,819	$	30,085	$	110,360
Gross margin		16,260		17,854			17,550		20,343		72,007
Operating income		7,708		8,679			8,292		10,379		35,058
Net income (loss) (a)		6,576		(6,302	)		7,424		8,873		16,571
Basic earnings (loss) per share		0.85		(0.82	)		0.96		1.15		2.15
Diluted earnings (loss) per share (b)		0.84		(0.82	)		0.95		1.14		2.13

Fiscal Year 2017 (c)
Revenue	$	21,928	$	25,826	$	23,212	$	25,605		$	96,571
Gross margin		14,084		15,925		15,152		17,149			62,310
Operating income		6,715		7,905		6,723		7,682	(d)		29,025	(d)
Net income		5,667		6,267		5,486		8,069	(d)		25,489	(d)
Basic earnings per share		0.73		0.81		0.71		1.05			3.29
Diluted earnings per share		0.72		0.80		0.70		1.03	(d)		3.25	(d)

(a) Reflects the net charge (benefit) related to the TCJA of $13.8 billion for the second quarter, $(104) million for the fourth quarter, and $13.7 billion for fiscal year 2018.

(b) Reflects the net charge (benefit) related to the TCJA, which decreased (increased) diluted EPS $1.78 for the second quarter, $(0.01) for the fourth quarter, and $1.75 for fiscal year 2018.

(c) On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

(d) Includes $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan, which decreased operating income, net income, and diluted EPS by $306 million, $243 million, and $0.04, respectively.

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Accounting Policies - Additional Information (Detail) - USD ($) $ in Millions		12 Months Ended
	Apr. 01, 2018	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016	Jul. 01, 2018	Jul. 01, 2016
Significant Accounting Policies [Line Items]
Current and long-term accounts receivable, net of allowance for doubtful accounts						$ 22,300
Long-term accounts receivable, net of allowance for doubtful accounts		$ 1,800	$ 1,700
Description of payment terms in contract with customer		Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days.
Advertising expense		$ 1,600	1,500	$ 1,600
Retained earnings		13,682	17,769
Long-term deferred tax liabilities		541	5,734
Other current assets		$ 6,751	$ 5,103
Accounting Standards Update 2018-02
Significant Accounting Policies [Line Items]
Reclassification of net tax benefit from AOCI to retained earnings	$ 42
Accounting Standards Update 2016-16 | Scenario Plan
Significant Accounting Policies [Line Items]
Retained earnings					$ 550
Long-term deferred tax assets					2,800
Long-term deferred tax liabilities					2,100
Other current assets					$ (150)
Lower Limit
Significant Accounting Policies [Line Items]
Estimated useful lives of intangible assets		1 year
Lower Limit | Software
Significant Accounting Policies [Line Items]
Estimated useful lives		3 years
Lower Limit | Computer Equipment
Significant Accounting Policies [Line Items]
Estimated useful lives		2 years
Lower Limit | Buildings and Improvements
Significant Accounting Policies [Line Items]
Estimated useful lives		5 years
Lower Limit | Leasehold Improvements
Significant Accounting Policies [Line Items]
Estimated useful lives		3 years
Lower Limit | Furniture and Fixtures
Significant Accounting Policies [Line Items]
Estimated useful lives		1 year
Upper Limit
Significant Accounting Policies [Line Items]
Estimated useful lives of intangible assets		20 years
Upper Limit | Software
Significant Accounting Policies [Line Items]
Estimated useful lives		7 years
Upper Limit | Computer Equipment
Significant Accounting Policies [Line Items]
Estimated useful lives		3 years
Upper Limit | Buildings and Improvements
Significant Accounting Policies [Line Items]
Estimated useful lives		15 years
Upper Limit | Leasehold Improvements
Significant Accounting Policies [Line Items]
Estimated useful lives		20 years
Upper Limit | Furniture and Fixtures
Significant Accounting Policies [Line Items]
Estimated useful lives		10 years

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Allowance for Doubtful Accounts (Detail) - Allowance for doubtful accounts - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Valuation And Qualifying Accounts Disclosure [Line Items]
Balance, beginning of period	$ 361	$ 409	$ 289
Charged to costs and other	134	58	175
Write-offs	(98)	(106)	(55)
Balance, end of period	397	361	409
Accounts receivable, net of allowance for doubtful accounts
Valuation And Qualifying Accounts Disclosure [Line Items]
Balance, beginning of period	345	392
Balance, end of period	377	345	392
Other Long-term Assets
Valuation And Qualifying Accounts Disclosure [Line Items]
Balance, beginning of period	16	17
Balance, end of period	$ 20	$ 16	$ 17

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Impact of Tax Cuts and Jobs Act on Previously Reported Balances of Prior Period Income Tax Liabilities (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Error Corrections And Prior Period Adjustments Restatement [Line Items]
Long-term income taxes	$ 30,265	$ 13,485
Other long-term liabilities	$ 5,211	3,549
As Previously Reported
Error Corrections And Prior Period Adjustments Restatement [Line Items]
Long-term income taxes		0
Other long-term liabilities		$ 17,034

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Impacts of Adoption of Standards Related to Revenue Recognition and Leases to Previously Reported Results - (Detail) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended																12 Months Ended
	Jun. 30, 2018		Mar. 31, 2018		Dec. 31, 2017		Sep. 30, 2017		Jun. 30, 2017		Mar. 31, 2017	[1]	Dec. 31, 2016	[1]	Sep. 30, 2016	[1]	Jun. 30, 2018		Jun. 30, 2017		Jun. 30, 2016	Jul. 01, 2016
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Revenue	$ 30,085		$ 26,819		$ 28,918		$ 24,538		$ 25,605	[1]	$ 23,212		$ 25,826		$ 21,928		$ 110,360		$ 96,571	[1]	$ 91,154
Provision for income taxes																	19,903		4,412		5,100
Net income	$ 8,873	[2]	$ 7,424	[2]	$ (6,302)	[2]	$ 6,576	[2]	$ 8,069	[1],[3]	$ 5,486		$ 6,267		$ 5,667		$ 16,571	[2]	$ 25,489	[1],[3]	$ 20,539
Diluted earnings per share	$ 1.14	[4]	$ 0.95	[4]	$ (0.82)	[4]	$ 0.84	[4]	$ 1.03	[1],[3]	$ 0.70		$ 0.80		$ 0.72		$ 2.13	[4]	$ 3.25	[1],[3]	$ 2.56
Balance Sheets
Accounts receivable, net of allowance for doubtful accounts	$ 26,481								$ 22,431								$ 26,481		$ 22,431
Operating lease right-of-use assets	6,686								6,555								6,686		6,555
Other current and long-term assets									11,179										11,179
Unearned revenue	32,720								26,656								32,720		26,656			$ 22,200
Deferred income taxes	541								5,734								541		5,734
Operating lease liabilities	5,568								5,372								5,568		5,372
Other current and long-term liabilities									24,621										24,621
Stockholders' equity	$ 82,718								87,711								$ 82,718		87,711		$ 83,090
As Previously Reported
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Revenue																			89,950		85,320
Provision for income taxes																			1,945		2,953
Net income																			$ 21,204		$ 16,798
Diluted earnings per share																			$ 2.71		$ 2.10
Balance Sheets
Accounts receivable, net of allowance for doubtful accounts									19,792										$ 19,792
Operating lease right-of-use assets									0										0
Other current and long-term assets									11,147										11,147
Unearned revenue									44,479										44,479
Deferred income taxes									531										531
Operating lease liabilities									0										0
Other current and long-term liabilities									23,464										23,464
Stockholders' equity									72,394										72,394
New Revenue Standard Adjustment | Restatement Adjustment
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Revenue																			6,621		$ 5,834
Provision for income taxes																			2,467		2,147
Net income																			$ 4,285		$ 3,741
Diluted earnings per share																			$ 0.54		$ 0.46
Balance Sheets
Accounts receivable, net of allowance for doubtful accounts									2,639										$ 2,639
Operating lease right-of-use assets									0										0
Other current and long-term assets									32										32
Unearned revenue									(17,823)										(17,823)
Deferred income taxes									5,203										5,203
Operating lease liabilities									0										0
Other current and long-term liabilities									(26)										(26)
Stockholders' equity									15,317										15,317
New Lease Standard Adjustment | Restatement Adjustment
Balance Sheets
Accounts receivable, net of allowance for doubtful accounts									0										0
Operating lease right-of-use assets									6,555										6,555
Other current and long-term assets									0										0
Unearned revenue									0										0
Deferred income taxes									0										0
Operating lease liabilities									5,372										5,372
Other current and long-term liabilities									1,183										1,183
Stockholders' equity									$ 0										$ 0

[1] On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

[2] Reflects the net charge (benefit) related to the TCJA of $13.8 billion for the second quarter, $(104) million for the fourth quarter, and $13.7 billion for fiscal year 2018.

[3] Includes $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan, which decreased operating income, net income, and diluted EPS by $306 million, $243 million, and $0.04, respectively.

[4] Reflects the net charge (benefit) related to the TCJA, which decreased (increased) diluted EPS $1.78 for the second quarter, $(0.01) for the fourth quarter, and $1.75 for fiscal year 2018.

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Basic and Diluted Earnings Per Share (Detail) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended																12 Months Ended
	Jun. 30, 2018		Mar. 31, 2018		Dec. 31, 2017		Sep. 30, 2017		Jun. 30, 2017	[3]	Mar. 31, 2017	[3]	Dec. 31, 2016	[3]	Sep. 30, 2016	[3]	Jun. 30, 2018		Jun. 30, 2017		Jun. 30, 2016
Earnings Per Share Basic And Diluted [Abstract]
Net income available for common shareholders (A)	$ 8,873	[1]	$ 7,424	[1]	$ (6,302)	[1]	$ 6,576	[1]	$ 8,069	[2]	$ 5,486		$ 6,267		$ 5,667		$ 16,571	[1]	$ 25,489	[2],[3]	$ 20,539
Weighted average outstanding shares of common stock (B)																	7,700		7,746		7,925
Dilutive effect of stock-based awards																	94		86		88
Common stock and common stock equivalents (C)																	7,794		7,832		8,013
Earnings Per Share
Basic (A/B)	$ 1.15		$ 0.96		$ (0.82)		$ 0.85		$ 1.05		$ 0.71		$ 0.81		$ 0.73		$ 2.15		$ 3.29	[3]	$ 2.59
Diluted (A/C)	$ 1.14	[4]	$ 0.95	[4]	$ (0.82)	[4]	$ 0.84	[4]	$ 1.03	[2]	$ 0.70		$ 0.80		$ 0.72		$ 2.13	[4]	$ 3.25	[2],[3]	$ 2.56

[1] Reflects the net charge (benefit) related to the TCJA of $13.8 billion for the second quarter, $(104) million for the fourth quarter, and $13.7 billion for fiscal year 2018.

[2] Includes $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan, which decreased operating income, net income, and diluted EPS by $306 million, $243 million, and $0.04, respectively.

[3] On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

[4] Reflects the net charge (benefit) related to the TCJA, which decreased (increased) diluted EPS $1.78 for the second quarter, $(0.01) for the fourth quarter, and $1.75 for fiscal year 2018.

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Components of Other Income (Expense), Net (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Other Income And Expenses [Abstract]
Dividends and interest income	$ 2,214	$ 1,387	$ 903
Interest expense	(2,733)	(2,222)	(1,243)
Net recognized gains on investments	2,399	2,583	668
Net losses on derivatives	(187)	(510)	(443)
Net losses on foreign currency remeasurements	(218)	(111)	(129)
Other, net	(59)	(251)	(195)
Total	$ 1,416	$ 876	$ (439)

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Net Recognized Gains (Losses) on Investments (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Other Income And Expenses [Abstract]
Other-than-temporary impairments of investments	$ (47)	$ (55)	$ (322)
Realized gains from sales of available-for-sale securities	3,478	3,064	1,376
Realized losses from sales of available-for-sale securities	(1,032)	(426)	(386)
Total	$ 2,399	$ 2,583	$ 668

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Investment Components, Including Associated Derivatives (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2015
Cash, Cash Equivalents and Investments [Line Items]
Cost Basis	$ 136,667	$ 136,160
Unrealized Gains	220	3,267
Unrealized Losses	(1,257)	(423)
Recorded Basis	135,630	139,004
Cash and cash equivalents	11,946	7,663	$ 6,510	$ 5,595
Short-term Investments	121,822	125,318
Equity and Other Investments	1,862	6,023
Cash
Cash, Cash Equivalents and Investments [Line Items]
Cash	3,942	3,624
Unrealized Gains	0	0
Unrealized Losses	0	0
Cash and cash equivalents	3,942	3,624
Short-term Investments	0	0
Equity and Other Investments	0	0
Mutual funds
Cash, Cash Equivalents and Investments [Line Items]
Cost Basis	246	1,478
Unrealized Gains	0	0
Unrealized Losses	0	0
Recorded Basis	246	1,478
Cash and cash equivalents	246	1,478
Short-term Investments	0	0
Equity and Other Investments	0	0
Commercial paper
Cash, Cash Equivalents and Investments [Line Items]
Cost Basis	2,513	319
Unrealized Gains	0	0
Unrealized Losses	0	0
Recorded Basis	2,513	319
Cash and cash equivalents	2,215	69
Short-term Investments	298	250
Equity and Other Investments	0	0
Certificates of deposit
Cash, Cash Equivalents and Investments [Line Items]
Cost Basis	2,058	1,358
Unrealized Gains	0	0
Unrealized Losses	0	0
Recorded Basis	2,058	1,358
Cash and cash equivalents	1,865	972
Short-term Investments	193	386
Equity and Other Investments	0	0
U.S. government and agency securities
Cash, Cash Equivalents and Investments [Line Items]
Cost Basis	109,862	112,119
Unrealized Gains	62	85
Unrealized Losses	(1,167)	(360)
Recorded Basis	108,757	111,844
Cash and cash equivalents	3,678	16
Short-term Investments	105,079	111,828
Equity and Other Investments	0	0
Foreign government bonds
Cash, Cash Equivalents and Investments [Line Items]
Cost Basis	5,182	5,276
Unrealized Gains	1	2
Unrealized Losses	(10)	(13)
Recorded Basis	5,173	5,265
Cash and cash equivalents	0	1,504
Short-term Investments	5,173	3,761
Equity and Other Investments	0	0
Mortgage- and asset-backed securities
Cash, Cash Equivalents and Investments [Line Items]
Cost Basis	3,868	3,921
Unrealized Gains	4	14
Unrealized Losses	(13)	(4)
Recorded Basis	3,859	3,931
Cash and cash equivalents	0	0
Short-term Investments	3,859	3,931
Equity and Other Investments	0	0
Corporate notes and bonds
Cash, Cash Equivalents and Investments [Line Items]
Cost Basis	6,947	4,786
Unrealized Gains	21	61
Unrealized Losses	(56)	(12)
Recorded Basis	6,912	4,835
Cash and cash equivalents	0	0
Short-term Investments	6,912	4,835
Equity and Other Investments	0	0
Municipal securities
Cash, Cash Equivalents and Investments [Line Items]
Cost Basis	271	284
Unrealized Gains	37	43
Unrealized Losses	(1)	0
Recorded Basis	307	327
Cash and cash equivalents	0	0
Short-term Investments	307	327
Equity and Other Investments	0	0
Common and preferred stock
Cash, Cash Equivalents and Investments [Line Items]
Cost Basis	1,220	2,472
Unrealized Gains	95	3,062
Unrealized Losses	(10)	(34)
Recorded Basis	1,305	5,500
Cash and cash equivalents	0	0
Short-term Investments	0	0
Equity and Other Investments	1,305	5,500
Other investments
Cash, Cash Equivalents and Investments [Line Items]
Cost Basis	558	523
Unrealized Gains	0	0
Unrealized Losses	0	0
Recorded Basis	558	523
Cash and cash equivalents	0	0
Short-term Investments	1	0
Equity and Other Investments	$ 557	$ 523

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Investments - Additional Information (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
U.S. Government and Agency Securities
Investment [Line Items]
Collateral received	$ 1,800	$ 3,700
Fair Value, Measurements, Nonrecurring
Investment [Line Items]
Recorded basis of common and preferred stock that are restricted for more than one year or are not publicly traded	$ 999	$ 1,073

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Unrealized Losses on Investments (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Unrealized Losses on Investments [Line Items]
Less than 12 Months - Fair Value	$ 91,112	$ 93,370
Less than 12 Months - Unrealized Losses	(1,130)	(367)
12 Months or Greater - Fair Value	4,877	917
12 Months or Greater - Unrealized Losses	(127)	(56)
Total Fair Value	95,989	94,287
Total Unrealized Losses	(1,257)	(423)
U.S. government and agency securities
Unrealized Losses on Investments [Line Items]
Less than 12 Months - Fair Value	82,352	87,558
Less than 12 Months - Unrealized Losses	(1,064)	(348)
12 Months or Greater - Fair Value	4,459	371
12 Months or Greater - Unrealized Losses	(103)	(12)
Total Fair Value	86,811	87,929
Total Unrealized Losses	(1,167)	(360)
Foreign government bonds
Unrealized Losses on Investments [Line Items]
Less than 12 Months - Fair Value	3,457	4,006
Less than 12 Months - Unrealized Losses	(7)	(2)
12 Months or Greater - Fair Value	13	23
12 Months or Greater - Unrealized Losses	(3)	(11)
Total Fair Value	3,470	4,029
Total Unrealized Losses	(10)	(13)
Mortgage- and asset-backed securities
Unrealized Losses on Investments [Line Items]
Less than 12 Months - Fair Value	2,072	1,068
Less than 12 Months - Unrealized Losses	(9)	(3)
12 Months or Greater - Fair Value	96	198
12 Months or Greater - Unrealized Losses	(4)	(1)
Total Fair Value	2,168	1,266
Total Unrealized Losses	(13)	(4)
Corporate notes and bonds
Unrealized Losses on Investments [Line Items]
Less than 12 Months - Fair Value	3,111	669
Less than 12 Months - Unrealized Losses	(43)	(8)
12 Months or Greater - Fair Value	301	177
12 Months or Greater - Unrealized Losses	(13)	(4)
Total Fair Value	3,412	846
Total Unrealized Losses	(56)	(12)
Municipal securities
Unrealized Losses on Investments [Line Items]
Less than 12 Months - Fair Value	45
Less than 12 Months - Unrealized Losses	(1)
12 Months or Greater - Fair Value	0
12 Months or Greater - Unrealized Losses	0
Total Fair Value	45
Total Unrealized Losses	(1)
Common and preferred stock
Unrealized Losses on Investments [Line Items]
Less than 12 Months - Fair Value	75	69
Less than 12 Months - Unrealized Losses	(6)	(6)
12 Months or Greater - Fair Value	8	148
12 Months or Greater - Unrealized Losses	(4)	(28)
Total Fair Value	83	217
Total Unrealized Losses	$ (10)	$ (34)

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Debt Investment Maturities (Detail) $ in Millions	Jun. 30, 2018 USD ($)
Cost Basis
Due in one year or less	$ 31,590
Due after one year through five years	76,422
Due after five years through 10 years	21,765
Due after 10 years	924
Total	130,701
Estimated Fair Value
Due in one year or less	31,451
Due after one year through five years	75,810
Due after five years through 10 years	21,396
Due after 10 years	922
Total	$ 129,579

XML

Derivatives - Additional Information (Detail) - USD ($)	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Derivative [Line Items]
Maximum length of time hedged in cash flow hedge	3 years
Minimum required liquidity under certain counterparty agreements	$ 1,000,000,000
Minimum liquidity for the period as defined by certain counterparty agreements	1,000,000,000
Estimated derivative net gains (losses) included in AOCI that will be reclassified into earnings within 12 months	$ 179,000,000
Senior Unsecured Obligations
Derivative [Line Items]
Debt instrument credit rating	AAA
Derivatives Sold | Foreign Exchange Contracts | Non-designated Hedge Derivatives
Derivative [Line Items]
Notional amounts	$ 13,400,000,000	$ 10,600,000,000
Derivatives Sold | Equity Contracts
Derivative [Line Items]
Notional amounts	5,000,000	2,400,000,000
Derivatives Sold | Equity Contracts | Designated Hedge Derivatives
Derivative [Line Items]
Notional amounts		1,800,000,000
Derivatives Sold | Interest Rate Contracts | Non-designated Hedge Derivatives
Derivative [Line Items]
Notional amounts	390,000,000	352,000,000
Derivatives Sold | Credit Contracts | Non-designated Hedge Derivatives
Derivative [Line Items]
Notional amounts	82,000,000	63,000,000
Derivatives Sold | Cash flow hedging | Foreign Exchange Contracts
Derivative [Line Items]
Notional amounts	6,100,000,000	8,900,000,000
Derivatives Sold | Fair value hedging | Foreign Exchange Contracts
Derivative [Line Items]
Notional amounts	5,000,000,000	5,100,000,000
Derivatives Purchased | Foreign Exchange Contracts | Non-designated Hedge Derivatives
Derivative [Line Items]
Notional amounts	9,400,000,000	8,800,000,000
Derivatives Purchased | Equity Contracts
Derivative [Line Items]
Notional amounts	49,000,000	1,900,000,000
Derivatives Purchased | Equity Contracts | Designated Hedge Derivatives
Derivative [Line Items]
Notional amounts		1,600,000,000
Derivatives Purchased | Interest Rate Contracts | Non-designated Hedge Derivatives
Derivative [Line Items]
Notional amounts	306,000,000	233,000,000
Derivatives Purchased | Mortgage-backed securities | Non-designated Hedge Derivatives
Derivative [Line Items]
Notional amounts	568,000,000	567,000,000
Derivatives Purchased | Credit Contracts | Non-designated Hedge Derivatives
Derivative [Line Items]
Notional amounts	$ 4,000,000	$ 267,000,000

XML

Fair Values of Derivative Instruments (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Short-term Investments
Derivatives, Fair Value [Line Items]
Derivative Assets	$ 118	$ 100
Net amount, assets	99	80
Short-term Investments | Eligible for Offsetting
Derivatives, Fair Value [Line Items]
Derivative Assets	113	100
Gross amounts of derivatives offset on the balance sheet, assets	(14)	(20)
Net amounts presented on the balance sheet, assets	99	80
Gross amounts of derivatives not offset on the balance sheet, assets	0	0
Cash collateral received, assets	0	0
Other Current Assets
Derivatives, Fair Value [Line Items]
Derivative Assets	395	336
Net amount, assets	260	204
Other Current Assets | Eligible for Offsetting
Derivatives, Fair Value [Line Items]
Derivative Assets	395	336
Gross amounts of derivatives offset on the balance sheet, assets	(135)	(132)
Net amounts presented on the balance sheet, assets	260	204
Gross amounts of derivatives not offset on the balance sheet, assets	0	0
Cash collateral received, assets	0	0
Equity and Other Investments
Derivatives, Fair Value [Line Items]
Derivative Assets	0	67
Net amount, assets	0	0
Equity and Other Investments | Eligible for Offsetting
Derivatives, Fair Value [Line Items]
Derivative Assets	0	67
Gross amounts of derivatives offset on the balance sheet, assets	0	(67)
Net amounts presented on the balance sheet, assets	0	0
Gross amounts of derivatives not offset on the balance sheet, assets	0	0
Cash collateral received, assets	0	0
Other Long-term Assets
Derivatives, Fair Value [Line Items]
Derivative Assets	25	6
Net amount, assets	22	(2)
Other Long-term Assets | Eligible for Offsetting
Derivatives, Fair Value [Line Items]
Derivative Assets	25	6
Gross amounts of derivatives offset on the balance sheet, assets	(3)	(8)
Net amounts presented on the balance sheet, assets	22	(2)
Gross amounts of derivatives not offset on the balance sheet, assets	0	0
Cash collateral received, assets	0	0
Other Current Liabilities
Derivatives, Fair Value [Line Items]
Derivative Liabilities	(203)	(337)
Net amount, liabilities	(288)	(341)
Other Current Liabilities | Eligible for Offsetting
Derivatives, Fair Value [Line Items]
Derivative Liabilities	(203)	(334)
Gross amounts of derivatives offset on the balance sheet, liabilities	150	221
Net amounts presented on the balance sheet, liabilities	(53)	(113)
Gross amounts of derivatives not offset on the balance sheet, liabilities	0	0
Cash collateral received, liabilities	(235)	(228)
Other Long-term Liabilities
Derivatives, Fair Value [Line Items]
Derivative Liabilities	(4)	(8)
Net amount, liabilities	(1)	(1)
Other Long-term Liabilities | Eligible for Offsetting
Derivatives, Fair Value [Line Items]
Derivative Liabilities	(4)	(8)
Gross amounts of derivatives offset on the balance sheet, liabilities	3	7
Net amounts presented on the balance sheet, liabilities	(1)	(1)
Gross amounts of derivatives not offset on the balance sheet, liabilities	0	0
Cash collateral received, liabilities	0	0
Non-designated Hedge Derivatives | Short-term Investments
Derivatives, Fair Value [Line Items]
Derivative Assets	23	20
Non-designated Hedge Derivatives | Short-term Investments | Foreign Exchange Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	10	9
Non-designated Hedge Derivatives | Short-term Investments | Equity Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	2	3
Non-designated Hedge Derivatives | Short-term Investments | Interest Rate Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	11	3
Non-designated Hedge Derivatives | Short-term Investments | Credit Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	5
Non-designated Hedge Derivatives | Other Current Assets
Derivatives, Fair Value [Line Items]
Derivative Assets	221	203
Non-designated Hedge Derivatives | Other Current Assets | Foreign Exchange Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	221	203
Non-designated Hedge Derivatives | Other Current Assets | Equity Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Non-designated Hedge Derivatives | Other Current Assets | Interest Rate Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Non-designated Hedge Derivatives | Other Current Assets | Credit Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Non-designated Hedge Derivatives | Equity and Other Investments
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Non-designated Hedge Derivatives | Equity and Other Investments | Foreign Exchange Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Non-designated Hedge Derivatives | Equity and Other Investments | Equity Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Non-designated Hedge Derivatives | Equity and Other Investments | Interest Rate Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Non-designated Hedge Derivatives | Equity and Other Investments | Credit Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Non-designated Hedge Derivatives | Other Long-term Assets
Derivatives, Fair Value [Line Items]
Derivative Assets	25	6
Non-designated Hedge Derivatives | Other Long-term Assets | Foreign Exchange Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	25	6
Non-designated Hedge Derivatives | Other Long-term Assets | Equity Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Non-designated Hedge Derivatives | Other Long-term Assets | Interest Rate Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Non-designated Hedge Derivatives | Other Long-term Assets | Credit Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Non-designated Hedge Derivatives | Other Current Liabilities
Derivatives, Fair Value [Line Items]
Derivative Liabilities	(203)	(148)
Non-designated Hedge Derivatives | Other Current Liabilities | Foreign Exchange Contracts
Derivatives, Fair Value [Line Items]
Derivative Liabilities	(193)	(134)
Non-designated Hedge Derivatives | Other Current Liabilities | Equity Contracts
Derivatives, Fair Value [Line Items]
Derivative Liabilities	(7)	(6)
Non-designated Hedge Derivatives | Other Current Liabilities | Interest Rate Contracts
Derivatives, Fair Value [Line Items]
Derivative Liabilities	(2)	(7)
Non-designated Hedge Derivatives | Other Current Liabilities | Credit Contracts
Derivatives, Fair Value [Line Items]
Derivative Liabilities	(1)	(1)
Non-designated Hedge Derivatives | Other Long-term Liabilities
Derivatives, Fair Value [Line Items]
Derivative Liabilities	(4)	(8)
Non-designated Hedge Derivatives | Other Long-term Liabilities | Foreign Exchange Contracts
Derivatives, Fair Value [Line Items]
Derivative Liabilities	(4)	(8)
Non-designated Hedge Derivatives | Other Long-term Liabilities | Equity Contracts
Derivatives, Fair Value [Line Items]
Derivative Liabilities	0	0
Non-designated Hedge Derivatives | Other Long-term Liabilities | Interest Rate Contracts
Derivatives, Fair Value [Line Items]
Derivative Liabilities	0	0
Non-designated Hedge Derivatives | Other Long-term Liabilities | Credit Contracts
Derivatives, Fair Value [Line Items]
Derivative Liabilities	0	0
Designated Hedge Derivatives | Short-term Investments
Derivatives, Fair Value [Line Items]
Derivative Assets	95	80
Designated Hedge Derivatives | Short-term Investments | Foreign Exchange Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	95	80
Designated Hedge Derivatives | Short-term Investments | Equity Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Designated Hedge Derivatives | Other Current Assets
Derivatives, Fair Value [Line Items]
Derivative Assets	174	133
Designated Hedge Derivatives | Other Current Assets | Foreign Exchange Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	174	133
Designated Hedge Derivatives | Other Current Assets | Equity Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Designated Hedge Derivatives | Equity and Other Investments
Derivatives, Fair Value [Line Items]
Derivative Assets	0	67
Designated Hedge Derivatives | Equity and Other Investments | Foreign Exchange Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Designated Hedge Derivatives | Equity and Other Investments | Equity Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	67
Designated Hedge Derivatives | Other Long-term Assets
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Designated Hedge Derivatives | Other Long-term Assets | Foreign Exchange Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Designated Hedge Derivatives | Other Long-term Assets | Equity Contracts
Derivatives, Fair Value [Line Items]
Derivative Assets	0	0
Designated Hedge Derivatives | Other Current Liabilities
Derivatives, Fair Value [Line Items]
Derivative Liabilities	0	(189)
Designated Hedge Derivatives | Other Current Liabilities | Foreign Exchange Contracts
Derivatives, Fair Value [Line Items]
Derivative Liabilities	0	(3)
Designated Hedge Derivatives | Other Current Liabilities | Equity Contracts
Derivatives, Fair Value [Line Items]
Derivative Liabilities	0	(186)
Designated Hedge Derivatives | Other Long-term Liabilities
Derivatives, Fair Value [Line Items]
Derivative Liabilities	0	0
Designated Hedge Derivatives | Other Long-term Liabilities | Foreign Exchange Contracts
Derivatives, Fair Value [Line Items]
Derivative Liabilities	0	0
Designated Hedge Derivatives | Other Long-term Liabilities | Equity Contracts
Derivatives, Fair Value [Line Items]
Derivative Liabilities	$ 0	$ 0

XML

Gains (Losses) on Fair Value Hedges and Related Hedged Items (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Foreign Exchange Contracts
Derivative Instruments, Gain (Loss) [Line Items]
Derivatives	$ 25	$ 441	$ (797)
Hedged items	78	(386)	838
Total amount of ineffectiveness	103	55	41
Equity Contracts
Derivative Instruments, Gain (Loss) [Line Items]
Derivatives	(324)	(74)	(76)
Hedged items	324	74	76
Total amount of ineffectiveness	0	0	0
Amount of equity contracts excluded from effectiveness assessment	$ 80	$ (80)	$ (10)

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Gains (Losses) Related to Cash Flow Hedges (Detail) - Designated Hedge Derivatives - Foreign Exchange Contracts - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Effective Portion
Gains recognized in other comprehensive income (net of tax of $11, $4, and $24)	$ 219	$ 328	$ 351
Gains reclassified from accumulated other comprehensive income (loss) into revenue	185	555	625
Amount Excluded from Effectiveness Assessment and Ineffective Portion
Losses recognized in other income (expense), net	$ (255)	$ (389)	$ (354)

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Gains (Losses) Related to Cash Flow Hedges (Parenthetical) (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Designated Hedge Derivatives | Foreign Exchange Contracts
Derivative Instruments, Gain (Loss) [Line Items]
Gains recognized in other comprehensive income, tax	$ 11	$ 4	$ 24

XML

Non-designated Derivative Gains (Losses) (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Derivative Instruments, Gain (Loss) [Line Items]
Changes in fair value of derivatives not designated as hedges	$ (137)	$ (234)	$ (154)
Foreign Exchange Contracts
Derivative Instruments, Gain (Loss) [Line Items]
Changes in fair value of derivatives not designated as hedges	(33)	(117)	(55)
Equity Contracts
Derivative Instruments, Gain (Loss) [Line Items]
Changes in fair value of derivatives not designated as hedges	(87)	(114)	(21)
Interest Rate Contracts
Derivative Instruments, Gain (Loss) [Line Items]
Changes in fair value of derivatives not designated as hedges	(15)	14	10
Credit Contracts
Derivative Instruments, Gain (Loss) [Line Items]
Changes in fair value of derivatives not designated as hedges	(2)	5	(1)
Other Contracts
Derivative Instruments, Gain (Loss) [Line Items]
Changes in fair value of derivatives not designated as hedges	$ 0	$ (22)	$ (87)

XML

Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - Fair Value, Measurements, Recurring - USD ($) $ in Millions		Jun. 30, 2018	Jun. 30, 2017
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		$ 130,412	$ 133,985
Gross
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		130,564	134,212
Gross | Derivatives and other
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities		207	384
Gross | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		107,571	113,121
Gross | Level 1 | Derivatives and other
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities		1	0
Gross | Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		22,958	21,072
Gross | Level 2 | Derivatives and other
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities		206	345
Gross | Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		35	19
Gross | Level 3 | Derivatives and other
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities		0	39
Gross | Mutual funds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		246	1,478
Gross | Mutual funds | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		246	1,478
Gross | Mutual funds | Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | Mutual funds | Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | Commercial paper
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		2,513	319
Gross | Commercial paper | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | Commercial paper | Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		2,513	319
Gross | Commercial paper | Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | Certificates of deposit
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		2,058	1,358
Gross | Certificates of deposit | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | Certificates of deposit | Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		2,058	1,358
Gross | Certificates of deposit | Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | U.S. government and agency securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		108,757	111,844
Gross | U.S. government and agency securities | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		107,015	109,228
Gross | U.S. government and agency securities | Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		1,742	2,616
Gross | U.S. government and agency securities | Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | Foreign government bonds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		5,076	5,187
Gross | Foreign government bonds | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		22	0
Gross | Foreign government bonds | Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		5,054	5,187
Gross | Foreign government bonds | Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | Mortgage- and asset-backed securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		3,855	3,934
Gross | Mortgage- and asset-backed securities | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | Mortgage- and asset-backed securities | Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		3,855	3,934
Gross | Mortgage- and asset-backed securities | Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | Corporate notes and bonds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		6,909	4,830
Gross | Corporate notes and bonds | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | Corporate notes and bonds | Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		6,894	4,829
Gross | Corporate notes and bonds | Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		15	1
Gross | Municipal securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		307	327
Gross | Municipal securities | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | Municipal securities | Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		307	327
Gross | Municipal securities | Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	0
Gross | Common and preferred stock
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		305	4,426
Gross | Common and preferred stock | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		287	2,414
Gross | Common and preferred stock | Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		0	1,994
Gross | Common and preferred stock | Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		18	18
Gross | Derivatives
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		538	509
Gross | Derivatives | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		1	1
Gross | Derivatives | Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		535	508
Gross | Derivatives | Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		2	0
Netting
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets	[1]	(152)	(227)
Netting | Derivatives and other
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities	[1]	(153)	(228)
Netting | Mutual funds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets	[1]	0	0
Netting | Commercial paper
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets	[1]	0	0
Netting | Certificates of deposit
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets	[1]	0	0
Netting | U.S. government and agency securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets	[1]	0	0
Netting | Foreign government bonds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets	[1]	0	0
Netting | Mortgage- and asset-backed securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets	[1]	0	0
Netting | Corporate notes and bonds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets	[1]	0	0
Netting | Municipal securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets	[1]	0	0
Netting | Common and preferred stock
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets	[1]	0	0
Netting | Derivatives
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets	[1]	(152)	(227)
Net
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		130,412	133,985
Net | Derivatives and other
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities		54	156
Net | Mutual funds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		246	1,478
Net | Commercial paper
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		2,513	319
Net | Certificates of deposit
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		2,058	1,358
Net | U.S. government and agency securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		108,757	111,844
Net | Foreign government bonds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		5,076	5,187
Net | Mortgage- and asset-backed securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		3,855	3,934
Net | Corporate notes and bonds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		6,909	4,830
Net | Municipal securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		307	327
Net | Common and preferred stock
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		305	4,426
Net | Derivatives
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets		$ 386	$ 282

[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.

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Reconciliation of Total Assets Measured at Fair Value on Recurring Basis to Balance Sheet Presentation (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Other	$ 2	$ 1
Recorded basis of investment components	135,630	139,004
Other Current and Long-term Assets
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Less derivative net assets classified as other current and long-term assets	(282)	(202)
Fair Value, Measurements, Recurring
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Net fair value of assets measured at fair value on a recurring basis	130,412	133,985
Cash	3,942	3,624
Fair Value, Measurements, Nonrecurring
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Common and preferred stock measured at fair value on a nonrecurring basis	999	1,073
Other investments measured at fair value on a nonrecurring basis	$ 557	$ 523

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Components of Inventories (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Inventory Disclosure [Abstract]
Raw materials	$ 655	$ 797
Work in process	54	145
Finished goods	1,953	1,239
Total	$ 2,662	$ 2,181

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Components of Property and Equipment (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Property Plant And Equipment [Abstract]
Land	$ 1,254	$ 1,107
Buildings and improvements	20,604	16,284
Leasehold improvements	4,735	5,064
Computer equipment and software	27,633	21,414
Furniture and equipment	4,457	4,044
Total, at cost	58,683	47,913
Accumulated depreciation	(29,223)	(24,179)
Total, net	$ 29,460	$ 23,734

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Property and Equipment - Additional Information (Detail) - USD ($) $ in Billions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Property, Plant and Equipment [Line Items]
Depreciation expense	$ 7.7	$ 6.1	$ 4.9
Building, Building Improvements and Leasehold Improvements
Property, Plant and Equipment [Line Items]
Committed for construction of new buildings, building improvements and leasehold improvements	$ 1.9

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Business Combinations - Additional Information (Detail) $ in Millions			12 Months Ended
	Jun. 04, 2018 USD ($)	Dec. 08, 2016 USD ($)	Jun. 30, 2018 USD ($) Acquisition
LinkedIn Corporation
Business Acquisition [Line Items]
Acquisition date		Dec. 08, 2016
Total purchase price		$ 27,000
Cash paid to acquire the business		$ 26,900
GitHub Inc
Business Acquisition [Line Items]
Acquisition agreement date	Jun. 04, 2018
Total purchase price to be transferred	$ 7,500
Other
Business Acquisition [Line Items]
Cash paid to acquire the business			$ 948
Business combination, number of business acquisitions | Acquisition			9

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Major Classes of Assets and Liabilities to Which We Allocated the Purchase Price (Detail) - USD ($) $ in Millions		Jun. 30, 2018	Jun. 30, 2017	Dec. 08, 2016	Jun. 30, 2016
Business Acquisition [Line Items]
Goodwill		$ 35,683	$ 35,122		$ 17,872
LinkedIn Corporation
Business Acquisition [Line Items]
Cash and cash equivalents				$ 1,328
Short-term investments				2,110
Other current assets				697
Property and equipment				1,529
Intangible assets				7,887
Goodwill	[1]			16,803
Short-term debt	[2]			(1,323)
Other current liabilities				(1,117)
Deferred income taxes				(774)
Other				(131)
Total purchase price				$ 27,009

[1] Goodwill was assigned to our Productivity and Business Processes segment. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of LinkedIn. None of the goodwill is expected to be deductible for income tax purposes.

[2] Convertible senior notes issued by LinkedIn on November 12, 2014, substantially all of which were redeemed after our acquisition of LinkedIn. The remaining $18 million of notes are not redeemable and are included in long-term debt in our consolidated balance sheets. Refer to Note 12 – Debt for further information.

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Major Classes of Assets and Liabilities to Which We Allocated the Purchase Price (Parenthetical) (Detail) - USD ($)	Jun. 30, 2018	Jun. 30, 2017	Dec. 08, 2016
Business Acquisition [Line Items]
Long-term debt	$ 76,898,000,000	$ 77,837,000,000
LinkedIn Corporation
Business Acquisition [Line Items]
Goodwill expected to be deductible for income tax purposes			$ 0
Long-term debt		$ 18,000,000

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Acquired Intangible Assets (Detail) - USD ($) $ in Millions		12 Months Ended
	Dec. 08, 2016	Jun. 30, 2018	Jun. 30, 2017
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted Average Life		5 years	9 years
Customer-related
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted Average Life		5 years	7 years
Marketing-related (trade names)
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted Average Life		5 years	19 years
Technology-based
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted Average Life		4 years	2 years
Contract-based
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted Average Life		4 years	6 years
LinkedIn Corporation
Acquired Finite-Lived Intangible Assets [Line Items]
Fair value of intangible assets acquired	$ 7,887
Weighted Average Life	9 years
LinkedIn Corporation | Customer-related
Acquired Finite-Lived Intangible Assets [Line Items]
Fair value of intangible assets acquired	$ 3,607
Weighted Average Life	7 years
LinkedIn Corporation | Marketing-related (trade names)
Acquired Finite-Lived Intangible Assets [Line Items]
Fair value of intangible assets acquired	$ 2,148
Weighted Average Life	20 years
LinkedIn Corporation | Technology-based
Acquired Finite-Lived Intangible Assets [Line Items]
Fair value of intangible assets acquired	$ 2,109
Weighted Average Life	3 years
LinkedIn Corporation | Contract-based
Acquired Finite-Lived Intangible Assets [Line Items]
Fair value of intangible assets acquired	$ 23
Weighted Average Life	5 years

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Revenue and Operating Loss Attributable to Acquiree, Since the Date of Acquisition (Detail) - LinkedIn Corporation $ in Millions	12 Months Ended
	Jun. 30, 2017 USD ($)
Business Acquisition [Line Items]
Revenue	$ 2,271
Operating loss	$ (924)

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Supplemental Consolidated Financial Results on Unaudited Pro Forma Basis, as If the Acquisition Had Been Consummated on Beginning of Period (Detail) - LinkedIn Corporation - USD ($) $ / shares in Units, $ in Millions	12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Business Acquisition [Line Items]
Revenue	$ 98,291	$ 94,490
Net income	$ 25,179	$ 19,128
Diluted earnings per share	$ 3.21	$ 2.38

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Carrying Amount of Goodwill (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Goodwill [Line Items]
Beginning Balance	$ 35,122	$ 17,872
Acquisitions	630	17,236
Other	(69)	14
Ending Balance	35,683	35,122
Productivity and Business Processes
Goodwill [Line Items]
Beginning Balance	23,739	6,678
Acquisitions	72	17,072	[1]
Other	12	(11)
Ending Balance	23,823	23,739
Intelligent Cloud
Goodwill [Line Items]
Beginning Balance	5,555	5,467
Acquisitions	164	49
Other	(16)	39
Ending Balance	5,703	5,555
More Personal Computing
Goodwill [Line Items]
Beginning Balance	5,828	5,727
Acquisitions	394	115
Other	(65)	(14)
Ending Balance	$ 6,157	$ 5,828

[1] Includes goodwill related to LinkedIn and other acquisitions. Refer to Note 9 – Business Combinations for further information.

XML

Goodwill - Additional Information (Detail) - USD ($)	May 01, 2018	May 01, 2017	May 01, 2016	Jun. 30, 2018	Jun. 30, 2017
Goodwill And Intangible Assets Disclosure [Abstract]
Accumulated goodwill impairment				$ 11,300,000,000	$ 11,300,000,000
Goodwill impairment charge	$ 0	$ 0	$ 0

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Finite-Lived Intangible Assets (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 15,936	$ 16,667
Accumulated Amortization	(7,883)	(6,561)
Net Carrying Amount	8,053	10,106
Technology-based
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	7,220	7,765
Accumulated Amortization	(5,018)	(4,318)
Net Carrying Amount	2,202	3,447
Customer-related
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	4,031	4,045
Accumulated Amortization	(1,205)	(692)
Net Carrying Amount	2,826	3,353
Marketing-related
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	4,006	4,016
Accumulated Amortization	(1,071)	(829)
Net Carrying Amount	2,935	3,187
Contract-based
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	679	841
Accumulated Amortization	(589)	(722)
Net Carrying Amount	$ 90	$ 119

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Intangible Assets - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Finite-Lived Intangible Assets [Line Items]
Intangible assets amortization expense	$ 2,200	$ 1,700	$ 978
Amortization of capitalized software	$ 54	$ 55	69
Devices
Finite-Lived Intangible Assets [Line Items]
Impairment charges of intangible assets			$ 480

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Intangible Assets Acquired (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Acquired Finite-Lived Intangible Assets [Line Items]
Amount	$ 219	$ 8,083
Weighted Average Life	5 years	9 years
Technology-based
Acquired Finite-Lived Intangible Assets [Line Items]
Amount	$ 178	$ 2,265
Weighted Average Life	4 years	2 years
Marketing-related
Acquired Finite-Lived Intangible Assets [Line Items]
Amount	$ 14	$ 2,148
Weighted Average Life	5 years	19 years
Contract-based
Acquired Finite-Lived Intangible Assets [Line Items]
Amount	$ 14	$ 63
Weighted Average Life	4 years	6 years
Customer-related
Acquired Finite-Lived Intangible Assets [Line Items]
Amount	$ 13	$ 3,607
Weighted Average Life	5 years	7 years

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Estimated Future Amortization Expense Related to Intangible Assets (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Goodwill And Intangible Assets Disclosure [Abstract]
Year Ending June 30, 2019	$ 1,785
Year Ending June 30, 2020	1,260
Year Ending June 30, 2021	1,043
Year Ending June 30, 2022	949
Year Ending June 30, 2023	806
Thereafter	2,210
Net Carrying Amount	$ 8,053	$ 10,106

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Debt - Additional Information (Detail) - USD ($)	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016	Oct. 31, 2017
Debt Instrument [Line Items]
Commercial paper	$ 0	$ 9,100,000,000
Credit facility, financial covenant	As of June 30, 2018, we were in compliance with the only financial covenant in both credit agreements, which requires us to maintain a coverage ratio of at least three times earnings before interest, taxes, depreciation, and amortization to interest expense, as defined in the credit agreements.
Credit facility, drawn	$ 0	0
Long-term debt	76,200,000,000	77,100,000,000
Long-term debt fair value	77,500,000,000	80,300,000,000
Cash paid for interest	2,400,000,000	1,600,000,000	$ 1,100,000,000
Debt issuance costs and unamortized discount	$ 658,000,000	$ 715,000,000
Credit Facility Expire on October 30th 2018
Debt Instrument [Line Items]
Credit facility				$ 5,000,000,000
Credit facility, expiration date	Oct. 30, 2018
Credit Facility Expire on October 31st 2022
Debt Instrument [Line Items]
Credit facility				$ 5,000,000,000
Credit facility, expiration date	Oct. 31, 2022
Commercial paper
Debt Instrument [Line Items]
Commercial paper, weighted average interest rate		1.01%
Commercial paper | Lower Limit
Debt Instrument [Line Items]
Commercial paper, maturity term		25 days
Commercial paper | Upper Limit
Debt Instrument [Line Items]
Commercial paper, maturity term		264 days

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Long-term Debt (Detail) - USD ($) $ in Millions		12 Months Ended
		Jun. 30, 2018	Jun. 30, 2017
Debt Instrument [Line Items]
Face Value		$ 76,898	$ 77,837
Notes 0.875 Percent Due November 15th 2017
Debt Instrument [Line Items]
Debt maturity date		Nov. 15, 2017	Nov. 15, 2017
Face Value		$ 0	$ 600
Stated Interest Rate		0.875%	0.875%
Effective Interest Rate		1.084%	1.084%
Notes 1.0 Percent Due May 1st 2018
Debt Instrument [Line Items]
Debt maturity date		May 01, 2018	May 01, 2018
Face Value		$ 0	$ 450
Stated Interest Rate		1.00%	1.00%
Effective Interest Rate		1.106%	1.106%
Notes 1.30 Percent Due November 3rd 2018
Debt Instrument [Line Items]
Debt maturity date		Nov. 03, 2018	Nov. 03, 2018
Face Value		$ 1,750	$ 1,750
Stated Interest Rate		1.30%	1.30%
Effective Interest Rate		1.396%	1.396%
Notes 1.625 Percent Due December 6th 2018
Debt Instrument [Line Items]
Debt maturity date		Dec. 06, 2018	Dec. 06, 2018
Face Value		$ 1,250	$ 1,250
Stated Interest Rate		1.625%	1.625%
Effective Interest Rate		1.824%	1.824%
Notes 4.2 Percent Due June 1st 2019
Debt Instrument [Line Items]
Debt maturity date		Jun. 01, 2019	Jun. 01, 2019
Face Value		$ 1,000	$ 1,000
Stated Interest Rate		4.20%	4.20%
Effective Interest Rate		4.379%	4.379%
Notes 1.1 Percent Due August 8th 2019
Debt Instrument [Line Items]
Debt maturity date		Aug. 08, 2019	Aug. 08, 2019
Face Value		$ 2,500	$ 2,500
Stated Interest Rate		1.10%	1.10%
Effective Interest Rate		1.203%	1.203%
Notes 0.500 Percent Due November 1st 2019
Debt Instrument [Line Items]
Debt maturity date		Nov. 01, 2019	Nov. 01, 2019
Face Value		$ 18	$ 18
Stated Interest Rate		0.50%	0.50%
Effective Interest Rate		0.50%	0.50%
Notes 1.850 Percent Due February 6th 2020
Debt Instrument [Line Items]
Debt maturity date		Feb. 06, 2020	Feb. 06, 2020
Face Value		$ 1,500	$ 1,500
Stated Interest Rate		1.85%	1.85%
Effective Interest Rate		1.952%	1.952%
Notes 1.850 Percent Due February 12th 2020
Debt Instrument [Line Items]
Debt maturity date		Feb. 12, 2020	Feb. 12, 2020
Face Value		$ 1,500	$ 1,500
Stated Interest Rate		1.85%	1.85%
Effective Interest Rate		1.935%	1.935%
Notes 3.0 Percent Due October 1st 2020
Debt Instrument [Line Items]
Debt maturity date		Oct. 01, 2020	Oct. 01, 2020
Face Value		$ 1,000	$ 1,000
Stated Interest Rate		3.00%	3.00%
Effective Interest Rate		3.137%	3.137%
Notes 2.0 Percent Due November 3rd 2020
Debt Instrument [Line Items]
Debt maturity date		Nov. 03, 2020	Nov. 03, 2020
Face Value		$ 2,250	$ 2,250
Stated Interest Rate		2.00%	2.00%
Effective Interest Rate		2.093%	2.093%
Notes 4.0 Percent Due February 8th 2021
Debt Instrument [Line Items]
Debt maturity date		Feb. 08, 2021	Feb. 08, 2021
Face Value		$ 500	$ 500
Stated Interest Rate		4.00%	4.00%
Effective Interest Rate		4.082%	4.082%
Notes 1.55 Percent Due August 8th 2021
Debt Instrument [Line Items]
Debt maturity date		Aug. 08, 2021	Aug. 08, 2021
Face Value		$ 2,750	$ 2,750
Stated Interest Rate		1.55%	1.55%
Effective Interest Rate		1.642%	1.642%
Notes 2.125 Percent Due December 6th 2021
Debt Instrument [Line Items]
Debt maturity date	[1]	Dec. 06, 2021	Dec. 06, 2021
Face Value	[1]	$ 2,044	$ 1,996
Stated Interest Rate	[1]	2.125%	2.125%
Effective Interest Rate	[1]	2.233%	2.233%
Notes 2.40 Percent Due February 6th 2022
Debt Instrument [Line Items]
Debt maturity date		Feb. 06, 2022	Feb. 06, 2022
Face Value		$ 1,750	$ 1,750
Stated Interest Rate		2.40%	2.40%
Effective Interest Rate		2.52%	2.52%
Notes 2.375 Percent Due February 12th 2022
Debt Instrument [Line Items]
Debt maturity date		Feb. 12, 2022	Feb. 12, 2022
Face Value		$ 1,500	$ 1,500
Stated Interest Rate		2.375%	2.375%
Effective Interest Rate		2.466%	2.466%
Notes 2.65 Percent Due November 3rd 2022
Debt Instrument [Line Items]
Debt maturity date		Nov. 03, 2022	Nov. 03, 2022
Face Value		$ 1,000	$ 1,000
Stated Interest Rate		2.65%	2.65%
Effective Interest Rate		2.717%	2.717%
Notes 2.125 Percent Due November 15th 2022
Debt Instrument [Line Items]
Debt maturity date		Nov. 15, 2022	Nov. 15, 2022
Face Value		$ 750	$ 750
Stated Interest Rate		2.125%	2.125%
Effective Interest Rate		2.239%	2.239%
Notes 2.375 Percent Due May 1st 2023
Debt Instrument [Line Items]
Debt maturity date		May 01, 2023	May 01, 2023
Face Value		$ 1,000	$ 1,000
Stated Interest Rate		2.375%	2.375%
Effective Interest Rate		2.465%	2.465%
Notes 2.0 Percent Due August 8th 2023
Debt Instrument [Line Items]
Debt maturity date		Aug. 08, 2023	Aug. 08, 2023
Face Value		$ 1,500	$ 1,500
Stated Interest Rate		2.00%	2.00%
Effective Interest Rate		2.101%	2.101%
Notes 3.625 Percent Due December 15th 2023
Debt Instrument [Line Items]
Debt maturity date		Dec. 15, 2023	Dec. 15, 2023
Face Value		$ 1,500	$ 1,500
Stated Interest Rate		3.625%	3.625%
Effective Interest Rate		3.726%	3.726%
Notes 2.875 Percent Due February 6th 2024
Debt Instrument [Line Items]
Debt maturity date		Feb. 06, 2024	Feb. 06, 2024
Face Value		$ 2,250	$ 2,250
Stated Interest Rate		2.875%	2.875%
Effective Interest Rate		3.041%	3.041%
Notes 2.70 Percent Due February 12th 2025
Debt Instrument [Line Items]
Debt maturity date		Feb. 12, 2025	Feb. 12, 2025
Face Value		$ 2,250	$ 2,250
Stated Interest Rate		2.70%	2.70%
Effective Interest Rate		2.772%	2.772%
Notes 3.125 Percent Due November 3rd 2025
Debt Instrument [Line Items]
Debt maturity date		Nov. 03, 2025	Nov. 03, 2025
Face Value		$ 3,000	$ 3,000
Stated Interest Rate		3.125%	3.125%
Effective Interest Rate		3.176%	3.176%
Notes 2.4 Percent Due August 8th 2026
Debt Instrument [Line Items]
Debt maturity date		Aug. 08, 2026	Aug. 08, 2026
Face Value		$ 4,000	$ 4,000
Stated Interest Rate		2.40%	2.40%
Effective Interest Rate		2.464%	2.464%
Notes 3.3 Percent Due February 6th 2027
Debt Instrument [Line Items]
Debt maturity date		Feb. 06, 2027	Feb. 06, 2027
Face Value		$ 4,000	$ 4,000
Stated Interest Rate		3.30%	3.30%
Effective Interest Rate		3.383%	3.383%
Notes 3.125 Percent Due December 6th 2028
Debt Instrument [Line Items]
Debt maturity date	[1]	Dec. 06, 2028	Dec. 06, 2028
Face Value	[1]	$ 2,044	$ 1,996
Stated Interest Rate	[1]	3.125%	3.125%
Effective Interest Rate	[1]	3.218%	3.218%
Notes 2.625 Percent Due May 2nd 2033
Debt Instrument [Line Items]
Debt maturity date	[1]	May 02, 2033	May 02, 2033
Face Value	[1]	$ 642	$ 627
Stated Interest Rate	[1]	2.625%	2.625%
Effective Interest Rate	[1]	2.69%	2.69%
Notes 3.50 Percent Due February 12th 2035
Debt Instrument [Line Items]
Debt maturity date		Feb. 12, 2035	Feb. 12, 2035
Face Value		$ 1,500	$ 1,500
Stated Interest Rate		3.50%	3.50%
Effective Interest Rate		3.604%	3.604%
Notes 4.2 Percent Due November 3rd 2035
Debt Instrument [Line Items]
Debt maturity date		Nov. 03, 2035	Nov. 03, 2035
Face Value		$ 1,000	$ 1,000
Stated Interest Rate		4.20%	4.20%
Effective Interest Rate		4.26%	4.26%
Notes 3.45 Percent Due August 8th 2036
Debt Instrument [Line Items]
Debt maturity date		Aug. 08, 2036	Aug. 08, 2036
Face Value		$ 2,250	$ 2,250
Stated Interest Rate		3.45%	3.45%
Effective Interest Rate		3.51%	3.51%
Notes 4.1 Percent Due February 6th 2037
Debt Instrument [Line Items]
Debt maturity date		Feb. 06, 2037	Feb. 06, 2037
Face Value		$ 2,500	$ 2,500
Stated Interest Rate		4.10%	4.10%
Effective Interest Rate		4.152%	4.152%
Notes 5.2 Percent Due June 1st 2039
Debt Instrument [Line Items]
Debt maturity date		Jun. 01, 2039	Jun. 01, 2039
Face Value		$ 750	$ 750
Stated Interest Rate		5.20%	5.20%
Effective Interest Rate		5.24%	5.24%
Notes 4.5 Percent Due October 1st 2040
Debt Instrument [Line Items]
Debt maturity date		Oct. 01, 2040	Oct. 01, 2040
Face Value		$ 1,000	$ 1,000
Stated Interest Rate		4.50%	4.50%
Effective Interest Rate		4.567%	4.567%
Notes 5.3 Percent Due February 8th 2041
Debt Instrument [Line Items]
Debt maturity date		Feb. 08, 2041	Feb. 08, 2041
Face Value		$ 1,000	$ 1,000
Stated Interest Rate		5.30%	5.30%
Effective Interest Rate		5.361%	5.361%
Notes 3.5 Percent Due November 15th 2042
Debt Instrument [Line Items]
Debt maturity date		Nov. 15, 2042	Nov. 15, 2042
Face Value		$ 900	$ 900
Stated Interest Rate		3.50%	3.50%
Effective Interest Rate		3.571%	3.571%
Notes 3.750 Percent Due May 1st 2043
Debt Instrument [Line Items]
Debt maturity date		May 01, 2043	May 01, 2043
Face Value		$ 500	$ 500
Stated Interest Rate		3.75%	3.75%
Effective Interest Rate		3.829%	3.829%
Notes 4.875 Percent Due December 15th 2043
Debt Instrument [Line Items]
Debt maturity date		Dec. 15, 2043	Dec. 15, 2043
Face Value		$ 500	$ 500
Stated Interest Rate		4.875%	4.875%
Effective Interest Rate		4.918%	4.918%
Notes 3.750 Percent Due February 12th 2045
Debt Instrument [Line Items]
Debt maturity date		Feb. 12, 2045	Feb. 12, 2045
Face Value		$ 1,750	$ 1,750
Stated Interest Rate		3.75%	3.75%
Effective Interest Rate		3.80%	3.80%
Notes 4.45 Percent Due November 3rd 2045
Debt Instrument [Line Items]
Debt maturity date		Nov. 03, 2045	Nov. 03, 2045
Face Value		$ 3,000	$ 3,000
Stated Interest Rate		4.45%	4.45%
Effective Interest Rate		4.492%	4.492%
Notes 3.7 Percent Due August 8th 2046
Debt Instrument [Line Items]
Debt maturity date		Aug. 08, 2046	Aug. 08, 2046
Face Value		$ 4,500	$ 4,500
Stated Interest Rate		3.70%	3.70%
Effective Interest Rate		3.743%	3.743%
Notes 4.25 Percent Due February 6th 2047
Debt Instrument [Line Items]
Debt maturity date		Feb. 06, 2047	Feb. 06, 2047
Face Value		$ 3,000	$ 3,000
Stated Interest Rate		4.25%	4.25%
Effective Interest Rate		4.287%	4.287%
Notes 4.0 Percent Due February 12th 2055
Debt Instrument [Line Items]
Debt maturity date		Feb. 12, 2055	Feb. 12, 2055
Face Value		$ 2,250	$ 2,250
Stated Interest Rate		4.00%	4.00%
Effective Interest Rate		4.063%	4.063%
Notes 4.75 Percent Due November 3rd 2055
Debt Instrument [Line Items]
Debt maturity date		Nov. 03, 2055	Nov. 03, 2055
Face Value		$ 1,000	$ 1,000
Stated Interest Rate		4.75%	4.75%
Effective Interest Rate		4.782%	4.782%
Notes 3.95 Percent Due August 8th 2056
Debt Instrument [Line Items]
Debt maturity date		Aug. 08, 2056	Aug. 08, 2056
Face Value		$ 2,250	$ 2,250
Stated Interest Rate		3.95%	3.95%
Effective Interest Rate		4.033%	4.033%
Notes 4.5 Percent Due February 6th 2057
Debt Instrument [Line Items]
Debt maturity date		Feb. 06, 2057	Feb. 06, 2057
Face Value		$ 2,000	$ 2,000
Stated Interest Rate		4.50%	4.50%
Effective Interest Rate		4.528%	4.528%

[1] Euro-denominated debt securities.

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Maturities of Long-term Debt (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Debt Disclosure [Abstract]
Year Ending June 30, 2019	$ 4,000
Year Ending June 30, 2020	5,518
Year Ending June 30, 2021	3,750
Year Ending June 30, 2022	8,044
Year Ending June 30, 2023	2,750
Thereafter	52,836
Total	$ 76,898	$ 77,837

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Income Taxes - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2015
Income Taxes [Line Items]
U.S. federal statutory tax rate			21.00%	35.00%	28.10%	35.00%	35.00%
Provision for income taxes					$ 19,903	$ 4,412	$ 5,100
Deferred tax liabilities, revenue recognition						5,486
Income taxes paid, net of refunds					5,500	2,400	3,900
Unrecognized tax benefits	$ 11,961		$ 11,961		11,961	11,737	10,164	$ 9,599
Unrecognized tax benefits, if recognized would affect our effective tax rates	11,300		11,300		11,300	10,200	8,800
Accrued interest expense related to uncertain tax positions net of federal income tax benefits	3,000		3,000		3,000	2,300	1,900
Interest expense on unrecognized tax benefits, net of tax effects					688	399	163
Accounting Standards Update 2014-09 | Restatement Adjustment
Income Taxes [Line Items]
Provision for income taxes						$ 2,467	$ 2,147
Deferred tax liabilities, revenue recognition	7,400		7,400		7,400
Tax Cuts and Jobs Act
Income Taxes [Line Items]
Provision for income taxes	(104)	$ 13,800			13,700
Charge related to transition tax					17,900
Benefit from impact of changes in tax rate					$ 4,200
Regional Operating Centers
Income Taxes [Line Items]
Foreign earnings, taxed at rates lower than U.S. rate as a percentage of foreign income before tax					87.00%	76.00%	91.00%
Federal
Income Taxes [Line Items]
Operating loss carryforwards	257		257		$ 257
Foreign Country
Income Taxes [Line Items]
Operating loss carryforwards	11,400		11,400		11,400
State
Income Taxes [Line Items]
Operating loss carryforwards	$ 1,400		$ 1,400		$ 1,400
Federal and State | Earliest Tax Year
Income Taxes [Line Items]
Operating loss carryforwards expiration year					2019
Federal and State | Latest Tax Year
Income Taxes [Line Items]
Operating loss carryforwards expiration year					2038

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Provision for Income Taxes (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Current Taxes
U.S. federal	$ 19,764	$ 2,739	$ 545
U.S. state and local	934	30	136
Foreign	4,348	2,472	1,940
Current taxes	25,046	5,241	2,621
Deferred Taxes
U.S. federal	(4,292)	(554)	1,919
U.S. state and local	(458)	269	111
Foreign	(393)	(544)	449
Deferred taxes	(5,143)	(829)	2,479
Provision for income taxes	$ 19,903	$ 4,412	$ 5,100

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Income Before Income Taxes (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Income Tax Disclosure [Abstract]
U.S.	$ 11,527	$ 6,843	$ 5,125
Foreign	24,947	23,058	20,514
Income before income taxes	$ 36,474	$ 29,901	$ 25,639

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Difference Between Income Taxes Computed at Federal Statutory Rate and Provision for Income Taxes (Detail)	6 Months Ended		12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Income Tax Disclosure [Abstract]
Federal statutory rate	21.00%	35.00%	28.10%	35.00%	35.00%
Effect of:
Foreign earnings taxed at lower rates			(7.80%)	(11.60%)	(14.50%)
Impacts of TCJA			37.70%	0.00%	0.00%
Phone business losses			0.00%	(5.70%)	1.00%
Excess tax benefits relating to stock-based compensation			(2.50%)	(2.10%)	(1.60%)
Interest, net			1.20%	1.40%	0.90%
Other reconciling items, net			(2.10%)	(2.20%)	(0.90%)
Effective rate			54.60%	14.80%	19.90%

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Deferred Income Tax Assets and Liabilities (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Deferred Income Tax Assets
Stock-based compensation expense	$ 460	$ 777
Accruals, reserves, and other expenses	1,832	1,859
Loss and credit carryforwards	3,369	4,809
Depreciation and amortization	351	53
Other	56	255
Deferred income tax assets	6,068	7,753
Less valuation allowance	(3,186)	(3,310)
Deferred income tax assets, net of valuation allowance	2,882	4,443
Deferred Income Tax Liabilities
Foreign earnings	0	(1,134)
Unrealized gain on investments and debt	0	(1,384)
Unearned revenue	(639)	(5,760)
Depreciation and amortization	(1,103)	(1,630)
Other	(312)	(21)
Deferred income tax liabilities	(2,054)	(9,929)
Net deferred income tax assets	828
Long-term deferred income tax liabilities	(541)	(5,734)
Net deferred income tax liabilities		(5,486)
Other Long-term Assets
Deferred Income Tax Liabilities
Other long-term assets	1,369	248
Long-term Deferred Income Tax Liabilities
Deferred Income Tax Liabilities
Long-term deferred income tax liabilities	$ (541)	$ (5,734)

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Changes in Unrecognized Tax Benefits (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Income Tax Disclosure [Abstract]
Balance, beginning of year	$ 11,737	$ 10,164	$ 9,599
Decreases related to settlements	(193)	(4)	(201)
Increases for tax positions related to the current year	1,445	1,277	1,086
Increases for tax positions related to prior years	151	397	115
Decreases for tax positions related to prior years	(1,176)	(49)	(317)
Decreases due to lapsed statutes of limitations	(3)	(48)	(118)
Balance, end of year	$ 11,961	$ 11,737	$ 10,164

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Income Taxes - Additional Information Regarding Examinations (Detail)	3 Months Ended			12 Months Ended
	Dec. 31, 2017	Sep. 30, 2015	Mar. 31, 2011	Jun. 30, 2018
Earliest Tax Year | Foreign Country
Income Tax Examination [Line Items]
Tax years subject to examination				1996
Latest Tax Year | Foreign Country
Income Tax Examination [Line Items]
Tax years subject to examination				2017
Internal Revenue Service (IRS) | Earliest Tax Year
Income Tax Examination [Line Items]
Tax years under audit	2010	2007	2004
Tax years subject to examination				2010
Internal Revenue Service (IRS) | Latest Tax Year
Income Tax Examination [Line Items]
Tax years under audit	2013	2009	2006
Tax years subject to examination				2017

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Restructuring Charges - Additional Information (Detail) $ in Millions	12 Months Ended
	Jun. 30, 2017 USD ($) Position	Jun. 30, 2016 USD ($)
2016 Restructuring
Restructuring Cost and Reserve [Line Items]
Number of positions eliminated | Position	4,700
Restructuring charges		$ 501
Completion date	Jun. 30, 2017
2017 Restructuring
Restructuring Cost and Reserve [Line Items]
Completion date	Jun. 30, 2018
2017 Restructuring | Severance
Restructuring Cost and Reserve [Line Items]
Restructuring charges	$ 306

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Unearned Revenue by Segment (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017	Jul. 01, 2016
Contract With Customer Liability [Line Items]
Unearned revenue	$ 32,720	$ 26,656	$ 22,200
Productivity and Business Processes
Contract With Customer Liability [Line Items]
Unearned revenue	14,864	12,692
Intelligent Cloud
Contract With Customer Liability [Line Items]
Unearned revenue	14,706	11,152
More Personal Computing
Contract With Customer Liability [Line Items]
Unearned revenue	$ 3,150	$ 2,812

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Unearned Revenue - Additional Information (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017	Jul. 01, 2016
Revenue From Contract With Customer [Abstract]
Unearned revenue	$ 32,720	$ 26,656	$ 22,200
Revenue allocated to remaining performance obligations	$ 73,000

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Changes in Unearned Revenue (Detail) $ in Millions	12 Months Ended
	Jun. 30, 2018 USD ($)
Revenue From Contract With Customer [Abstract]
Balance, beginning of period	$ 26,656
Deferral of revenue	61,142
Recognition of unearned revenue	(55,078)
Balance, end of period	$ 32,720

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Unearned Revenue - Remaining Performance Obligation - Additional Information (Detail) - Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2018-07-01	Jun. 30, 2018
Contract With Customer Liability [Line Items]
Revenue allocated to remaining performance obligations, percentage of revenue expected to be recognized	60.00%
Revenue allocated to remaining performance obligations, expected timing of satisfaction	12 months

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Leases - Additional Information (Detail) $ in Millions	12 Months Ended
	Jun. 30, 2018 USD ($)
Operating Lease
Leases [Line Items]
Additional leases, primarily for datacenters, that have not yet commenced	$ 594
Finance Lease
Leases [Line Items]
Additional leases, primarily for datacenters, that have not yet commenced	$ 2,400
Lower Limit
Leases [Line Items]
Operating and Finance leases, remaining lease terms	1 year
Additional operating leases that have not yet commenced, lease terms	1 year
Additional finance leases that have not yet commenced, lease terms	1 year
Upper Limit
Leases [Line Items]
Operating and Finance leases, remaining lease terms	20 years
Operating leases, options to extend leases term	5 years
Finance leases, options to extend leases term	5 years
Operating and Finance leases, options to terminate leases term	1 year
Additional operating leases that have not yet commenced, lease terms	20 years
Additional finance leases that have not yet commenced, lease terms	20 years

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Components of Lease Expense (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Leases [Abstract]
Operating lease cost	$ 1,585	$ 1,412	$ 936
Finance lease cost:
Amortization of right-of-use assets	243	104	28
Interest on lease liabilities	175	68	28
Total finance lease cost	$ 418	$ 172	$ 56

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Supplemental Cash Flow Information Related to Leases (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$ 1,522	$ 1,157	$ 936
Operating cash flows from finance leases	175	68	28
Financing cash flows from finance leases	144	46	6
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	1,571	1,270	1,062
Finance leases	$ 1,933	$ 1,773	$ 413

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Supplemental Balance Sheet Information Related to Leases (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Operating Leases
Operating lease right-of-use assets	$ 6,686	$ 6,555
Total operating lease liabilities	6,967	6,795
Finance Leases
Property and equipment, gross	58,683	47,913
Accumulated depreciation	(29,223)	(24,179)
Total, net	29,460	23,734
Total finance lease liabilities	$ 4,301	$ 2,538
Weighted Average Remaining Lease Term
Operating leases	7 years	7 years
Finance leases	13 years	13 years
Weighted Average Discount Rate
Operating leases	2.70%	2.50%
Finance leases	5.20%	4.70%
Finance Lease
Finance Leases
Property and equipment, gross	$ 4,543	$ 2,658
Accumulated depreciation	(404)	(161)
Total, net	4,139	2,497
Other Current Liabilities
Operating Leases
Total operating lease liabilities	1,399	1,423
Finance Leases
Total finance lease liabilities	176	113
Operating Lease Liabilities
Operating Leases
Total operating lease liabilities	5,568	5,372
Other Long-term Liabilities
Finance Leases
Total finance lease liabilities	$ 4,125	$ 2,425

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Maturities of lease liabilities (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017
Leases [Abstract]
Operating Leases, Year Ending June 30, 2019	$ 1,492
Operating Leases, Year Ending June 30, 2020	1,347
Operating Leases, Year Ending June 30, 2021	1,086
Operating Leases, Year Ending June 30, 2022	902
Operating Leases, Year Ending June 30, 2023	721
Operating Leases, Thereafter	2,157
Operating Leases, Total lease payments	7,705
Operating Leases, Less imputed interest	(738)
Operating Leases	6,967	$ 6,795
Finance Leases, Year Ending June 30, 2019	386
Finance Leases, Year Ending June 30, 2020	393
Finance Leases, Year Ending June 30, 2021	401
Finance Leases, Year Ending June 30, 2022	408
Finance Leases, Year Ending June 30, 2023	410
Finance Leases, Thereafter	4,036
Finance Leases, Total lease payments	6,034
Finance Leases, Less imputed interest	(1,733)
Finance Leases	$ 4,301	$ 2,538

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Contingencies - Additional Information (Detail) $ in Millions	Jun. 30, 2018 USD ($)
Commitments And Contingencies Disclosure [Abstract]
Accrual for disclosed loss contingencies, current, ending balance	$ 323
Amount not accrued for estimated maximum losses for disclosed loss contingencies	$ 1,100

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Shares of Common Stock Outstanding (Detail) - shares shares in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Equity [Abstract]
Balance, beginning of year	7,708	7,808	8,027
Issued	68	70	75
Repurchased	(99)	(170)	(294)
Balance, end of year	7,677	7,708	7,808

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Stockholders' Equity - Additional Information (Detail) - USD ($)	Jun. 30, 2018	Sep. 20, 2016	Sep. 16, 2013
Share Repurchase Program 2013
Share Repurchases [Line Items]
Amount available for repurchase under the share repurchase program approved by the company's Board of Directors			$ 40,000,000,000
Share Repurchase Program 2016
Share Repurchases [Line Items]
Amount available for repurchase under the share repurchase program approved by the company's Board of Directors		$ 40,000,000,000
Unused amount of share repurchase program	$ 28,200,000,000

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Share Repurchases (Detail) - USD ($) shares in Millions, $ in Millions	3 Months Ended												12 Months Ended
	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Share Repurchases [Line Items]
Shares of common stock repurchased													99	170	294
Value of common stock repurchased													$ 8,600	$ 10,283	$ 14,800
Share Repurchase Program 2016
Share Repurchases [Line Items]
Shares of common stock repurchased	21	34	22	22	23	25
Value of common stock repurchased	$ 2,100	$ 3,100	$ 1,800	$ 1,600	$ 1,600	$ 1,600
Share Repurchase Program 2013
Share Repurchases [Line Items]
Shares of common stock repurchased							59	63	70	69	66	89
Value of common stock repurchased							$ 3,533	$ 3,550	$ 3,600	$ 3,600	$ 3,600	$ 4,000

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Dividends Declared (Detail) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended								12 Months Ended
	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Equity [Abstract]
Declaration Date	Jun. 13, 2018	Mar. 12, 2018	Nov. 29, 2017	Sep. 19, 2017	Jun. 13, 2017	Mar. 14, 2017	Nov. 30, 2016	Sep. 20, 2016
Dividend Per Share	$ 0.42	$ 0.42	$ 0.42	$ 0.42	$ 0.39	$ 0.39	$ 0.39	$ 0.39	$ 1.68	$ 1.56	$ 1.44
Record Date	Aug. 16, 2018	May 17, 2018	Feb. 15, 2018	Nov. 16, 2017	Aug. 17, 2017	May 18, 2017	Feb. 16, 2017	Nov. 17, 2016
Amount	$ 3,224	$ 3,226	$ 3,232	$ 3,238	$ 3,003	$ 3,009	$ 3,012	$ 3,024
Payment Date	Sep. 13, 2018	Jun. 14, 2018	Mar. 08, 2018	Dec. 14, 2017	Sep. 14, 2017	Jun. 08, 2017	Mar. 09, 2017	Dec. 08, 2016

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Summary of Changes in Accumulated Other Comprehensive Income (Loss) by Component (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance, beginning of period	$ 87,711	$ 83,090
Net change related to other comprehensive income (loss)	(2,856)	(1,167)	$ (728)
Balance, end of period	82,718	87,711	83,090
Derivatives
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance, beginning of period	134	352	590
Unrealized gains (losses), net of tax	218	328	351
Tax expense included in provision for income taxes	6	9	36
Amounts reclassified from accumulated other comprehensive income	(179)	(546)	(589)
Net change related to other comprehensive income (loss)	39	(218)	(238)
Balance, end of period	173	134	352
Derivatives | Revenue
Accumulated Other Comprehensive Income (Loss) [Line Items]
Reclassification adjustments for gains	(185)	(555)	(625)
Investments
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance, beginning of period	1,825	2,941	3,169
Unrealized gains (losses), net of tax	(1,146)	517	219
Tax expense included in provision for income taxes	738	880	241
Amounts reclassified from accumulated other comprehensive income	(1,571)	(1,633)	(447)
Net change related to other comprehensive income (loss)	(2,717)	(1,116)	(228)
Balance, end of period	(892)	1,825	2,941
Investments | Other income (expense), net
Accumulated Other Comprehensive Income (Loss) [Line Items]
Reclassification adjustments for gains	(2,309)	(2,513)	(688)
Translation adjustments and other
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance, beginning of period	(1,332)	(1,499)	(1,237)
Net change related to other comprehensive income (loss)	(178)	167	(262)
Balance, end of period	(1,510)	(1,332)	(1,499)
Accumulated other comprehensive income (loss)
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance, beginning of period	627	1,794	2,522
Net change related to other comprehensive income (loss)	(2,856)	(1,167)	(728)
Cumulative effect of accounting change	42	0	0
Balance, end of period	$ (2,187)	$ 627	$ 1,794

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Summary of Changes in Accumulated Other Comprehensive Income (Loss) by Component (Parenthetical) (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Derivatives
Accumulated Other Comprehensive Income (Loss) [Line Items]
Unrealized gains (losses), tax	$ 11	$ 4	$ 24
Net change related to other comprehensive income (loss), tax	5	(5)	(12)
Investments
Accumulated Other Comprehensive Income (Loss) [Line Items]
Unrealized gains (losses), tax	(427)	267	120
Net change related to other comprehensive income (loss), tax	(1,165)	(613)	(121)
Translation adjustments and other
Accumulated Other Comprehensive Income (Loss) [Line Items]
Net change related to other comprehensive income (loss), tax	$ 0	$ 9	$ (33)

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Employee Stock and Savings Plans - Additional Information (Detail) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	12 Months Ended
	Jun. 30, 2018		Jun. 30, 2017	Jun. 30, 2016
Compensation Related Costs Disclosure [Line Items]
Company contribution amount for each dollar a participant contributes to the savings plan	50.00%
Matching contributions for all employee savings plans	$ 807		$ 734	$ 549
Upper Limit | IRS Compensation Limit
Compensation Related Costs Disclosure [Line Items]
Percentage of employee's earnings the company may contribute to the savings plan	50.00%
Stock Awards
Compensation Related Costs Disclosure [Line Items]
Shares authorized for future grant	381
Unrecognized compensation costs	$ 7,000
Unrecognized compensation costs are expected to be recognized over a weighted average period (years)	3 years
Weighted average grant-date fair value	$ 75.88	[1]	$ 55.64	$ 41.51
Fair value of awards vested	$ 6,600		$ 4,800	$ 3,900
Stock Awards | Lower Limit
Compensation Related Costs Disclosure [Line Items]
Award vest period	4 years
Stock Awards | Upper Limit
Compensation Related Costs Disclosure [Line Items]
Award vest period	5 years
Stock Awards | 2017 Stock Plan
Compensation Related Costs Disclosure [Line Items]
Shares authorized for future grant	308
Restricted Stock Units | Executive Incentive Plan
Compensation Related Costs Disclosure [Line Items]
Award vest period	4 years
Performance Stock Units | Executive Incentive Plan
Compensation Related Costs Disclosure [Line Items]
Award vest period	3 years
Employee Stock
Compensation Related Costs Disclosure [Line Items]
Shares authorized for future grant	116
Percentage of market value at which employees are able to purchase shares of common stock	90.00%		90.00%	90.00%
Maximum percentage of gross compensation at which employees may purchase shares	15.00%		15.00%	15.00%

[1] Includes 3 million, 2 million, and 1 million of PSUs granted at target and performance adjustments above target levels for fiscal years 2018, 2017, and 2016, respectively.

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Stock-Based Compensation Expense and Related Income Tax Benefits (Detail) - USD ($) $ in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Stock-based compensation expense	$ 3,940	$ 3,266	$ 2,668
Income tax benefits related to stock-based compensation	$ 823	$ 1,066	$ 882

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Assumptions Used in Estimating the Fair Value of Stock Award Grants (Detail) - $ / shares	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items]
Interest rates minimum	1.70%	1.20%	1.10%
Interest rates maximum	2.90%	2.20%	1.80%
Lower Limit
Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items]
Dividends per share (quarterly amounts)	$ 0.39	$ 0.36	$ 0.31
Upper Limit
Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items]
Dividends per share (quarterly amounts)	$ 0.42	$ 0.39	$ 0.36

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Stock Plan Activity (Detail) - Stock Awards - $ / shares shares in Millions		12 Months Ended
		Jun. 30, 2018		Jun. 30, 2017	Jun. 30, 2016
Shares
Nonvested balance, beginning of year		201
Granted	[1]	70
Vested		(80)
Forfeited		(17)
Nonvested balance, end of year		174		201
Weighted Average Grant-Date Fair Value
Nonvested balance, beginning of year		$ 46.32
Granted		75.88	[1]	$ 55.64	$ 41.51
Vested		45.74
Forfeited		53.41
Nonvested balance, end of year		$ 57.85		$ 46.32

[1] Includes 3 million, 2 million, and 1 million of PSUs granted at target and performance adjustments above target levels for fiscal years 2018, 2017, and 2016, respectively.

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Stock Plan Activity (Parenthetical) (Detail) - shares shares in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Performance Stock Units
Share based Compensation Arrangement by Share based Payment Award [Line Items]
Nonvested stock awards granted	3	2	1

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Employee Purchased Shares (Detail) - $ / shares shares in Millions	12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Shares purchased	13	13	15
Average price per share	$ 76.40	$ 56.36	$ 44.83

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Segment Revenue (Detail) - USD ($) $ in Millions	3 Months Ended												12 Months Ended
	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	[1]	Mar. 31, 2017	[1]	Dec. 31, 2016	[1]	Sep. 30, 2016	[1]	Jun. 30, 2018	Jun. 30, 2017		Jun. 30, 2016
Segment Reporting Information [Line Items]
Revenue	$ 30,085	$ 26,819	$ 28,918	$ 24,538	$ 25,605		$ 23,212		$ 25,826		$ 21,928		$ 110,360	$ 96,571	[1]	$ 91,154
Productivity and Business Processes
Segment Reporting Information [Line Items]
Revenue													35,865	29,870		25,792
Intelligent Cloud
Segment Reporting Information [Line Items]
Revenue													32,219	27,407		24,952
More Personal Computing
Segment Reporting Information [Line Items]
Revenue													$ 42,276	$ 39,294		$ 40,410

[1] On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

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Operating Income (Loss) by Segment (Detail) - USD ($) $ in Millions	3 Months Ended												12 Months Ended
	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	[1],[2]	Mar. 31, 2017	[2]	Dec. 31, 2016	[2]	Sep. 30, 2016	[2]	Jun. 30, 2018	Jun. 30, 2017		Jun. 30, 2016
Segment Reporting Information [Line Items]
Operating Income (Loss)	$ 10,379	$ 8,292	$ 8,679	$ 7,708	$ 7,682		$ 6,723		$ 7,905		$ 6,715		$ 35,058	$ 29,025	[1],[2]	$ 26,078
Reportable Segments | Productivity and Business Processes
Segment Reporting Information [Line Items]
Operating Income (Loss)													12,924	11,389		11,756
Reportable Segments | Intelligent Cloud
Segment Reporting Information [Line Items]
Operating Income (Loss)													11,524	9,127		9,249
Reportable Segments | More Personal Computing
Segment Reporting Information [Line Items]
Operating Income (Loss)													10,610	8,815		6,183
Corporate and Other
Segment Reporting Information [Line Items]
Operating Income (Loss)													$ 0	$ (306)		$ (1,110)

[1] Includes $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan, which decreased operating income, net income, and diluted EPS by $306 million, $243 million, and $0.04, respectively.

[2] On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

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Segment Information and Geographic Data - Additional Information (Detail)	12 Months Ended
	Jun. 30, 2018
Segment Reporting [Abstract]
Sales to an individual customer	No sales to an individual customer or country other than the United States accounted for more than 10% of revenue for the fiscal years 2018, 2017, or 2016.

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Revenue Classified by Major Geographic Areas (Detail) - USD ($) $ in Millions		3 Months Ended												12 Months Ended
		Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	[1]	Mar. 31, 2017	[1]	Dec. 31, 2016	[1]	Sep. 30, 2016	[1]	Jun. 30, 2018	Jun. 30, 2017		Jun. 30, 2016
Geographic Information [Line Items]
Revenues		$ 30,085	$ 26,819	$ 28,918	$ 24,538	$ 25,605		$ 23,212		$ 25,826		$ 21,928		$ 110,360	$ 96,571	[1]	$ 91,154
United States
Geographic Information [Line Items]
Revenues	[2]													55,926	51,078		46,416
Other Countries
Geographic Information [Line Items]
Revenues														$ 54,434	$ 45,493		$ 44,738

[1] On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

[2] Includes billings to OEMs and certain multinational organizations because of the nature of these businesses and the impracticability of determining the geographic source of the revenue.

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Revenue Classified by Significant Product and Service Offerings (Detail) - USD ($) $ in Millions	3 Months Ended												12 Months Ended
	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	[1]	Mar. 31, 2017	[1]	Dec. 31, 2016	[1]	Sep. 30, 2016	[1]	Jun. 30, 2018	Jun. 30, 2017		Jun. 30, 2016
Revenue from External Customer [Line Items]
Revenue	$ 30,085	$ 26,819	$ 28,918	$ 24,538	$ 25,605		$ 23,212		$ 25,826		$ 21,928		$ 110,360	$ 96,571	[1]	$ 91,154
Office Products and Cloud Services
Revenue from External Customer [Line Items]
Revenue													28,316	25,573		23,868
Server Products and Cloud Services
Revenue from External Customer [Line Items]
Revenue													26,129	21,649		19,062
Windows
Revenue from External Customer [Line Items]
Revenue													19,518	18,593		17,548
Gaming
Revenue from External Customer [Line Items]
Revenue													10,353	9,051		9,202
Search Advertising
Revenue from External Customer [Line Items]
Revenue													7,012	6,219		5,428
Enterprise Services
Revenue from External Customer [Line Items]
Revenue													5,846	5,542		5,659
Devices
Revenue from External Customer [Line Items]
Revenue													5,134	5,062		7,888
LinkedIn
Revenue from External Customer [Line Items]
Revenue													5,259	2,271		0
Other products and services
Revenue from External Customer [Line Items]
Revenue													$ 2,793	$ 2,611		$ 2,499

[1] On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

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Revenue Classified by Significant Product and Service Offerings (Parenthetical) (Detail) - USD ($) $ in Millions	3 Months Ended												12 Months Ended
	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	[1]	Mar. 31, 2017	[1]	Dec. 31, 2016	[1]	Sep. 30, 2016	[1]	Jun. 30, 2018	Jun. 30, 2017		Jun. 30, 2016
Revenue from External Customer [Line Items]
Revenue	$ 30,085	$ 26,819	$ 28,918	$ 24,538	$ 25,605		$ 23,212		$ 25,826		$ 21,928		$ 110,360	$ 96,571	[1]	$ 91,154
Commercial Cloud
Revenue from External Customer [Line Items]
Revenue													$ 23,200	$ 14,900		$ 9,500

[1] On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

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Long-Lived Assets, Excluding Financial Instruments and Tax Assets, Classified by Location of Controlling Statutory Company (Detail) - USD ($) $ in Millions	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Certain Long-Lived Assets by Geography [Line Items]
Long-lived assets	$ 79,882	$ 75,517	$ 45,159
United States
Certain Long-Lived Assets by Geography [Line Items]
Long-lived assets	44,501	42,730	25,145
Ireland
Certain Long-Lived Assets by Geography [Line Items]
Long-lived assets	12,843	12,889	2,099
Luxembourg
Certain Long-Lived Assets by Geography [Line Items]
Long-lived assets	6,856	6,854	6,868
Other Countries
Certain Long-Lived Assets by Geography [Line Items]
Long-lived assets	$ 15,682	$ 13,044	$ 11,047

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Quarterly Information (Unaudited) (Detail) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended																12 Months Ended
	Jun. 30, 2018		Mar. 31, 2018		Dec. 31, 2017		Sep. 30, 2017		Jun. 30, 2017	[1]	Mar. 31, 2017	[1]	Dec. 31, 2016	[1]	Sep. 30, 2016	[1]	Jun. 30, 2018		Jun. 30, 2017	[1]	Jun. 30, 2016
Quarterly Financial Information Disclosure [Abstract]
Revenue	$ 30,085		$ 26,819		$ 28,918		$ 24,538		$ 25,605		$ 23,212		$ 25,826		$ 21,928		$ 110,360		$ 96,571		$ 91,154
Gross margin	20,343		17,550		17,854		16,260		17,149		15,152		15,925		14,084		72,007		62,310		58,374
Operating income	10,379		8,292		8,679		7,708		7,682	[2]	6,723		7,905		6,715		35,058		29,025	[2]	26,078
Net income (loss)	$ 8,873	[3]	$ 7,424	[3]	$ (6,302)	[3]	$ 6,576	[3]	$ 8,069	[2]	$ 5,486		$ 6,267		$ 5,667		$ 16,571	[3]	$ 25,489	[2]	$ 20,539
Basic earnings (loss) per share	$ 1.15		$ 0.96		$ (0.82)		$ 0.85		$ 1.05		$ 0.71		$ 0.81		$ 0.73		$ 2.15		$ 3.29		$ 2.59
Diluted earnings (loss) per share	$ 1.14	[4]	$ 0.95	[4]	$ (0.82)	[4]	$ 0.84	[4]	$ 1.03	[2]	$ 0.70		$ 0.80		$ 0.72		$ 2.13	[4]	$ 3.25	[2]	$ 2.56

[1] On December 8, 2016, we acquired LinkedIn Corporation. LinkedIn has been included in our consolidated results of operations starting on the acquisition date.

[2] Includes $306 million of employee severance expenses primarily related to our sales and marketing restructuring plan, which decreased operating income, net income, and diluted EPS by $306 million, $243 million, and $0.04, respectively.

[3] Reflects the net charge (benefit) related to the TCJA of $13.8 billion for the second quarter, $(104) million for the fourth quarter, and $13.7 billion for fiscal year 2018.

[4] Reflects the net charge (benefit) related to the TCJA, which decreased (increased) diluted EPS $1.78 for the second quarter, $(0.01) for the fourth quarter, and $1.75 for fiscal year 2018.

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Quarterly Information (Unaudited) (Parenthetical) (Detail) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended			12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2016
Quarterly Financial Information [Line Items]
Provision (benefit) for income taxes				$ 19,903	$ 4,412	$ 5,100
Decrease in operating income due to restructuring			$ 306
Decrease in net income due to restructuring			$ 243
Decrease in diluted earnings per share due to restructuring			$ 0.04
Sales and Marketing Restructuring Plan | Severance
Quarterly Financial Information [Line Items]
Restructuring charges			$ 306
Tax Cuts and Jobs Act
Quarterly Financial Information [Line Items]
Provision (benefit) for income taxes	$ (104)	$ 13,800		$ 13,700
Decrease (increase) in diluted earnings per share	$ (0.01)	$ 1.78		$ 1.75