UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended September 30, 2024
	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:
Title of each class	Trading Symbol	Name of exchange on which registered
Common stock, $0.00000625 par value per share	MSFT	Nasdaq
3.125% Notes due 2028	MSFT	Nasdaq
2.625% Notes due 2033	MSFT	Nasdaq

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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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 ☐	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 ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of October 24, 2024
Common Stock, $0.00000625 par value per share	7,434,880,776 shares

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended September 30, 2024

INDEX

				Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		a)	Income Statements for the Three Months Ended September 30, 2024 and 2023	3
		b)	Comprehensive Income Statements for the Three Months Ended September 30, 2024 and 2023	4
		c)	Balance Sheets as of September 30, 2024 and June 30, 2024	5
		d)	Cash Flows Statements for the Three Months Ended September 30, 2024 and 2023	6
		e)	Stockholders’ Equity Statements for the Three Months Ended September 30, 2024 and 2023	7
		f)	Notes to Financial Statements	8
		g)	Report of Independent Registered Public Accounting Firm	30
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		44
	Item 4.	Controls and Procedures		44
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings		45
	Item 1A.	Risk Factors		45
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		60
	Item 5.	Other Information		61
	Item 6.	Exhibits		62
SIGNATURE				63

2

PART I

Item 1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INCOME STATEMENTS

(In millions, except per share amounts) (Unaudited)
Three Months Ended September 30,	2024			2023
Revenue:
Product	$	15,272		$	15,535
Service and other		50,313			40,982
Total revenue		65,585			56,517
Cost of revenue:
Product		3,294			3,531
Service and other		16,805			12,771
Total cost of revenue		20,099			16,302
Gross margin		45,486			40,215
Research and development		7,544			6,659
Sales and marketing		5,717			5,187
General and administrative		1,673			1,474
Operating income		30,552			26,895
Other income (expense), net		(283	)		389
Income before income taxes		30,269			27,284
Provision for income taxes		5,602			4,993
Net income	$	24,667		$	22,291
Earnings per share:
Basic	$	3.32		$	3.00
Diluted	$	3.30		$	2.99
Weighted average shares outstanding:
Basic		7,433			7,429
Diluted		7,470			7,462

Refer to accompanying notes.

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Item 1

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)
Three Months Ended September 30,	2024			2023
Net income	$	24,667		$	22,291
Other comprehensive income (loss), net of tax:
Net change related to derivatives		(10	)		21
Net change related to investments		1,114			(260	)
Translation adjustments and other		304			(355	)
Other comprehensive income (loss)		1,408			(594	)
Comprehensive income	$	26,075		$	21,697

Refer to accompanying notes.

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Item 1

BALANCE SHEETS

(In millions) (Unaudited)
	September 30, 2024			June 30, 2024
Assets
Current assets:
Cash and cash equivalents	$	20,840		$	18,315
Short-term investments		57,588			57,228
Total cash, cash equivalents, and short-term investments		78,428			75,543
Accounts receivable, net of allowance for doubtful accounts of $647 and $830		44,148			56,924
Inventories		1,626			1,246
Other current assets		25,724			26,021
Total current assets		149,926			159,734
Property and equipment, net of accumulated depreciation of $80,517 and $76,421		152,863			135,591
Operating lease right-of-use assets		20,528			18,961
Equity and other investments		15,778			14,600
Goodwill		119,374			119,220
Intangible assets, net		26,751			27,597
Other long-term assets		37,793			36,460
Total assets	$	523,013		$	512,163
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	22,768		$	21,996
Short-term debt		0			6,693
Current portion of long-term debt		2,249			2,249
Accrued compensation		8,326			12,564
Short-term income taxes		9,717			5,017
Short-term unearned revenue		53,026			57,582
Other current liabilities		19,114			19,185
Total current liabilities		115,200			125,286
Long-term debt		42,868			42,688
Long-term income taxes		24,452			27,931
Long-term unearned revenue		2,663			2,602
Deferred income taxes		2,581			2,618
Operating lease liabilities		16,361			15,497
Other long-term liabilities		31,165			27,064
Total liabilities		235,290			243,686
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 7,436 and 7,434		102,976			100,923
Retained earnings		188,929			173,144
Accumulated other comprehensive loss		(4,182	)		(5,590	)
Total stockholders’ equity		287,723			268,477
Total liabilities and stockholders’ equity	$	523,013		$	512,163

Refer to accompanying notes.

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Item 1

CASH FLOWS STATEMENTS

(In millions) (Unaudited)
Three Months Ended September 30,	2024			2023
Operations
Net income	$	24,667		$	22,291
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other		7,383			3,921
Stock-based compensation expense		2,832			2,507
Net recognized losses (gains) on investments and derivatives		(125	)		14
Deferred income taxes		(1,433	)		(568	)
Changes in operating assets and liabilities:
Accounts receivable		14,037			11,034
Inventories		(373	)		(505	)
Other current assets		(82	)		(796	)
Other long-term assets		(1,761	)		(2,013	)
Accounts payable		(916	)		1,214
Unearned revenue		(5,553	)		(4,126	)
Income taxes		1,016			1,425
Other current liabilities		(5,479	)		(4,106	)
Other long-term liabilities		(33	)		291
Net cash from operations		34,180			30,583
Financing
Proceeds from issuance (repayments) of debt, maturities of 90 days or less, net		(5,746	)		18,692
Proceeds from issuance of debt		0			7,073
Repayments of debt		(966	)		(1,500	)
Common stock issued		706			685
Common stock repurchased		(4,107	)		(4,831	)
Common stock cash dividends paid		(5,574	)		(5,051	)
Other, net		(889	)		(307	)
Net cash from (used in) financing		(16,576	)		14,761
Investing
Additions to property and equipment		(14,923	)		(9,917	)
Acquisition of companies, net of cash acquired, and purchases of intangible and other assets		(1,849	)		(1,186	)
Purchases of investments		(1,620	)		(8,460	)
Maturities of investments		2,136			15,718
Sales of investments		1,968			5,330
Other, net		(913	)		(982	)
Net cash from (used in) investing		(15,201	)		503
Effect of foreign exchange rates on cash and cash equivalents		122			(99	)
Net change in cash and cash equivalents		2,525			45,748
Cash and cash equivalents, beginning of period		18,315			34,704
Cash and cash equivalents, end of period	$	20,840		$	80,452

Refer to accompanying notes.

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Item 1

STOCKHOLDERS’ EQUITY STATEMENTS

(In millions, except per share amounts) (Unaudited)
Three Months Ended September 30,	2024			2023
Common stock and paid-in capital
Balance, beginning of period	$	100,923		$	93,718
Common stock issued		706			685
Common stock repurchased		(1,485	)		(1,401	)
Stock-based compensation expense		2,832			2,507
Other, net		0			(1	)
Balance, end of period		102,976			95,508
Retained earnings
Balance, beginning of period		173,144			118,848
Net income		24,667			22,291
Common stock cash dividends		(6,171	)		(5,571	)
Common stock repurchased		(2,711	)		(3,425	)
Balance, end of period		188,929			132,143
Accumulated other comprehensive loss
Balance, beginning of period		(5,590	)		(6,343	)
Other comprehensive income (loss)		1,408			(594	)
Balance, end of period		(4,182	)		(6,937	)
Total stockholders’ equity	$	287,723		$	220,714
Cash dividends declared per common share	$	0.83		$	0.75

Refer to accompanying notes.

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Item 1

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — ACCOUNTING POLICIES

Accounting Principles

Our unaudited interim consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Microsoft Corporation fiscal year 2024 Form 10-K filed with the U.S. Securities and Exchange Commission on July 30, 2024.

Principles of Consolidation

The consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated.

Recast of Certain Prior Period Information

In August 2024, we announced changes to the composition of our segments. These changes align our segments with how we currently manage our business, most notably bringing the commercial components of Microsoft 365 together in the Productivity and Business Processes segment. Beginning in fiscal year 2025, the information that our chief operating decision maker is regularly provided and reviews for purposes of allocating resources and assessing performance reflects these segment changes. Prior period segment information has been recast to conform to the way we internally manage and monitor our business during fiscal year 2025. These changes impacted Note 8 – Goodwill, Note 12 – Unearned Revenue, and Note 17 – Segment Information and Geographic Data.

The recast of prior period information had no impact on our consolidated balance sheets, consolidated income statements, or consolidated cash flows statements.

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 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 uncertain tax positions that have been recognized in our consolidated financial statements or tax returns; and determining the timing and amount of impairments for investments. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties.

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.

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Item 1

Debt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in fair value, excluding credit losses and impairments, are recorded in other comprehensive income. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If 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, then a decline in fair value below cost is recorded as an impairment charge in 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.

Equity investments with readily determinable fair values are measured at fair value. Equity investments without readily determinable fair values are measured using the equity method or measured at cost with adjustments for observable changes in price or impairments (referred to as the measurement alternative). We perform a qualitative assessment on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Changes in value are recorded in other income (expense), net.

Investments that are considered variable interest entities (“VIEs”) are evaluated to determine whether we are the primary beneficiary of the VIE, in which case we would be required to consolidate the entity. We evaluate whether we have (1) the power to direct the activities that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We have determined we are not the primary beneficiary of any of our VIE investments. Therefore, our VIE investments are not consolidated and the majority are accounted for under the equity method of accounting. We have an investment in OpenAI Global, LLC (“OpenAI”) and have made total funding commitments of $13 billion. The investment is accounted for under the equity method of accounting.

Derivatives

Derivative instruments are recognized as either assets or liabilities and 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, gains and losses are recognized in other income (expense), net with offsetting gains and losses on the hedged items. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.

For derivative instruments designated as cash flow hedges, gains and losses are initially reported as a component of other comprehensive income and subsequently recognized in other income (expense), net with the corresponding hedged item. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.

For derivative instruments that are not designated as hedges, gains and losses from changes in fair values are primarily recognized in other income (expense), net.

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 investments 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.

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Item 1

•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 investments include commercial paper, certificates of deposit, U.S. agency securities, foreign government bonds, mortgage- and asset-backed securities, corporate notes and bonds, and municipal securities. Our Level 2 derivative assets and liabilities include certain cleared swap contracts and over-the-counter forward, 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 assets and liabilities include investments in corporate notes and bonds, municipal securities, 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 equity investments without readily determinable fair values on a nonrecurring basis. 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.

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

Contract Balances and Other Receivables

As of September 30, 2024 and June 30, 2024, long-term accounts receivable, net of allowance for doubtful accounts, was $4.8 billion and $4.9 billion, respectively, and is included in other long-term assets in our consolidated balance sheets.

As of September 30, 2024 and June 30, 2024, other receivables related to activities to facilitate the purchase of server components were $11.4 billion and $10.5 billion, respectively, and are included in other current assets in our consolidated balance sheets.

We record financing receivables when we offer certain of our customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of September 30, 2024 and June 30, 2024, our financing receivables, net were $4.3 billion and $4.5 billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets. We record an allowance to cover expected losses based on troubled accounts, historical experience, and other currently available evidence.

Related Party Transactions

In March 2024, we entered into an agreement with Inflection AI, Inc. (“Inflection”), pursuant to which we obtained a non-exclusive license to Inflection’s intellectual property. Reid Hoffman, a member of our Board of Directors, is a co-founder of and serves on the board of directors of Inflection. As of the date of the agreement with Inflection, Reprogrammed Interchange LLC (“Reprogrammed”) and entities affiliated with Greylock Ventures (“Greylock”) each held less than a 10% equity interest in Inflection. Mr. Hoffman may be deemed to beneficially own the shares held by Reprogrammed and Greylock by virtue of his relationship with such entities. Mr. Hoffman did not participate in any portions of the meetings of our Board of Directors or any committee thereof to review and approve the transaction with Inflection.

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Item 1

Recent Accounting Guidance

Segment Reporting – Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standards Board (“FASB”) issued a new standard to improve reportable segment disclosures. The guidance expands the disclosures required for reportable segments in our annual and interim consolidated financial statements, primarily through enhanced disclosures about significant segment expenses. The standard will be effective for us beginning with our annual reporting for fiscal year 2025 and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of this standard on our segment disclosures.

Income Taxes – Improvements to Income Tax Disclosures

In December 2023, the FASB issued a new standard to improve income tax disclosures. The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. The standard will be effective for us beginning with our annual reporting for fiscal year 2026, with early adoption permitted. We are currently evaluating the impact of this standard on our income tax disclosures.

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)
Three Months Ended September 30,	2024		2023
Net income available for common shareholders (A)	$	24,667	$	22,291
Weighted average outstanding shares of common stock (B)		7,433		7,429
Dilutive effect of stock-based awards		37		33
Common stock and common stock equivalents (C)		7,470		7,462
Earnings Per Share
Basic (A/B)	$	3.32	$	3.00
Diluted (A/C)	$	3.30	$	2.99

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

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NOTE 3 — OTHER INCOME (EXPENSE), NET

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

(In millions)
Three Months Ended September 30,	2024			2023
Interest and dividends income	$	681		$	1,166
Interest expense		(582	)		(525	)
Net recognized gains (losses) on investments		463			(107	)
Net gains (losses) on derivatives		(338	)		93
Net gains (losses) on foreign currency remeasurements		176			(101	)
Other, net		(683	)		(137	)
Total	$	(283	)	$	389

Other, net primarily reflects net recognized losses on equity method investments, including OpenAI.

Net Recognized Gains (Losses) on Investments

Net recognized gains (losses) on debt investments were as follows:

(In millions)
Three Months Ended September 30,	2024			2023
Realized gains from sales of available-for-sale securities	$	8		$	2
Realized losses from sales of available-for-sale securities		(15	)		(25	)
Impairments and allowance for credit losses		12			(6	)
Total	$	5		$	(29	)

Net recognized gains (losses) on equity investments were as follows:

(In millions)
Three Months Ended September 30,	2024			2023
Net realized gains on investments sold	$	65		$	45
Net unrealized gains (losses) on investments still held		412			(123	)
Impairments of investments		(19	)		0
Total	$	458		$	(