Revenue increased primarily due to strong sales of Windows 7, the 2010 Microsoft Office system, Server and Tools products, and the Xbox 360 console and video games. Revenue also increased due to the deferral in the prior year of approximately $1.5 billion of revenue related to the Windows 7 Deferral. Changes in foreign currency exchange rates had an insignificant impact on revenue.
Operating income increased reflecting the change in revenue, offset in part by higher operating expenses. Key changes in operating expenses were:
• Cost of revenue increased $297 million or 10%, primarily reflecting higher online costs and increased volumes of Xbox 360 consoles sold.
• General and administrative expenses increased $197 million or 27%, due mainly to increased legal charges and headcount-related expenses.
• Research and development expenses increased $131 million or 6%, due mainly to higher headcount-related expenses and third-party development and programming costs.
Diluted earnings per share increased reflecting increased net income and the repurchase of 485 million shares during the 12 months ended September 30, 2010.