Revenue increased primarily due to strong sales of Server and Tools products and services and the 2010 Microsoft Office system, offset in part by a decline in Xbox 360 entertainment platform sales. Revenue for the three months ended March 31, 2012 also included Skype revenue.
Operating income increased 12%, primarily reflecting an increase in revenue, offset in part by higher research and development expenses. Research and development expenses increased $248 million or 11%, due mainly to higher headcount-related expenses. Headcount-related expenses increased across the company reflecting a 4% increase in headcount from March 31, 2011 and changes in our employee compensation program.
Diluted earnings per share were $0.60. Prior year net income and diluted earnings per share reflected a partial settlement with the U.S. Internal Revenue Service ("I.R.S.") and higher other income. The partial settlement with the I.R.S. added $461 million to prior year net income and $0.05 to diluted earnings per share.