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 December 31, 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 January 23, 2025
Common Stock, $0.00000625 par value per share	7,433,982,235 shares

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended December 31, 2024

INDEX

				Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		a)	Income Statements for the Three and Six Months Ended December 31, 2024 and 2023	3
		b)	Comprehensive Income Statements for the Three and Six Months Ended December 31, 2024 and 2023	4
		c)	Balance Sheets as of December 31, 2024 and June 30, 2024	5
		d)	Cash Flows Statements for the Three and Six Months Ended December 31, 2024 and 2023	6
		e)	Stockholders’ Equity Statements for the Three and Six Months Ended December 31, 2024 and 2023	7
		f)	Notes to Financial Statements	8
		g)	Report of Independent Registered Public Accounting Firm	31
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		47
	Item 4.	Controls and Procedures		47
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings		48
	Item 1A.	Risk Factors		48
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		64
	Item 5.	Other Information		65
	Item 6.	Exhibits		66
SIGNATURE				67

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 December 31,							Six Months Ended December 31,
	2024			2023				2024			2023
Revenue:
Product	$	16,219		$	18,941		$	31,491		$	34,476
Service and other		53,413			43,079			103,726			84,061
Total revenue		69,632			62,020			135,217			118,537
Cost of revenue:
Product		3,856			5,964			7,150			9,495
Service and other		17,943			13,659			34,748			26,430
Total cost of revenue		21,799			19,623			41,898			35,925
Gross margin		47,833			42,397			93,319			82,612
Research and development		7,917			7,142			15,461			13,801
Sales and marketing		6,440			6,246			12,157			11,433
General and administrative		1,823			1,977			3,496			3,451
Operating income		31,653			27,032			62,205			53,927
Other expense, net		(2,288	)		(506	)		(2,571	)		(117	)
Income before income taxes		29,365			26,526			59,634			53,810
Provision for income taxes		5,257			4,656			10,859			9,649
Net income	$	24,108		$	21,870		$	48,775		$	44,161
Earnings per share:
Basic	$	3.24		$	2.94		$	6.56		$	5.94
Diluted	$	3.23		$	2.93		$	6.53		$	5.92
Weighted average shares outstanding:
Basic		7,435			7,432			7,434			7,431
Diluted		7,468			7,468			7,469			7,465

Refer to accompanying notes.

3

PART I

Item 1

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)	Three Months Ended December 31,						Six Months Ended December 31,
	2024			2023				2024			2023
Net income	$	24,108		$	21,870		$	48,775		$	44,161
Other comprehensive income (loss), net of tax:
Net change related to derivatives		34			(3	)		24			18
Net change related to investments		(434	)		1,331			680			1,071
Translation adjustments and other		(1,034	)		660			(730	)		305
Other comprehensive income (loss)		(1,434	)		1,988			(26	)		1,394
Comprehensive income	$	22,674		$	23,858		$	48,749		$	45,555

Refer to accompanying notes.

4

PART I

Item 1

BALANCE SHEETS

(In millions) (Unaudited)
	December 31, 2024			June 30, 2024
Assets
Current assets:
Cash and cash equivalents	$	17,482		$	18,315
Short-term investments		54,073			57,228
Total cash, cash equivalents, and short-term investments		71,555			75,543
Accounts receivable, net of allowance for doubtful accounts of $662 and $830		48,188			56,924
Inventories		909			1,246
Other current assets		26,428			26,021
Total current assets		147,080			159,734
Property and equipment, net of accumulated depreciation of $82,820 and $76,421		166,902			135,591
Operating lease right-of-use assets		22,816			18,961
Equity and other investments		15,581			14,600
Goodwill		119,191			119,220
Intangible assets, net		25,385			27,597
Other long-term assets		36,943			36,460
Total assets	$	533,898		$	512,163
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	22,608		$	21,996
Short-term debt		0			6,693
Current portion of long-term debt		5,248			2,249
Accrued compensation		9,176			12,564
Short-term income taxes		6,056			5,017
Short-term unearned revenue		45,508			57,582
Other current liabilities		20,286			19,185
Total current liabilities		108,882			125,286
Long-term debt		39,722			42,688
Long-term income taxes		24,389			27,931
Long-term unearned revenue		2,537			2,602
Deferred income taxes		2,513			2,618
Operating lease liabilities		17,254			15,497
Other long-term liabilities		35,906			27,064
Total liabilities		231,203			243,686
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 7,435 and 7,434		104,829			100,923
Retained earnings		203,482			173,144
Accumulated other comprehensive loss		(5,616	)		(5,590	)
Total stockholders’ equity		302,695			268,477
Total liabilities and stockholders’ equity	$	533,898		$	512,163

Refer to accompanying notes.

5

PART I

Item 1

CASH FLOWS STATEMENTS

(In millions) (Unaudited)	Three Months Ended December 31,							Six Months Ended December 31,
	2024			2023				2024			2023
Operations
Net income	$	24,108		$	21,870		$	48,775		$	44,161
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other		6,827			5,959			14,210			9,880
Stock-based compensation expense		3,089			2,828			5,921			5,335
Net recognized losses on investments and derivatives		976			198			851			212
Deferred income taxes		(1,158	)		(1,702	)		(2,591	)		(2,270	)
Changes in operating assets and liabilities:
Accounts receivable		(5,978	)		(2,951	)		8,059			8,083
Inventories		711			1,474			338			969
Other current assets		(353	)		725			(435	)		(71	)
Other long-term assets		(1,089	)		(1,427	)		(2,850	)		(3,440	)
Accounts payable		958			(2,521	)		42			(1,307	)
Unearned revenue		(6,338	)		(5,538	)		(11,891	)		(9,664	)
Income taxes		(3,395	)		(1,554	)		(2,379	)		(129	)
Other current liabilities		3,217			1,518			(2,262	)		(2,588	)
Other long-term liabilities		716			(26	)		683			265
Net cash from operations		22,291			18,853			56,471			49,436
Financing
Proceeds from issuance (repayments) of debt, maturities of 90 days or less, net		0			(8,490	)		(5,746	)		10,202
Proceeds from issuance of debt		0			10,773			0			17,846
Repayments of debt		0			(2,916	)		(966	)		(4,416	)
Common stock issued		256			261			962			946
Common stock repurchased		(4,986	)		(4,000	)		(9,093	)		(8,831	)
Common stock cash dividends paid		(6,170	)		(5,574	)		(11,744	)		(10,625	)
Other, net		(343	)		(201	)		(1,232	)		(508	)
Net cash from (used in) financing		(11,243	)		(10,147	)		(27,819	)		4,614
Investing
Additions to property and equipment		(15,804	)		(9,735	)		(30,727	)		(19,652	)
Acquisition of companies, net of cash acquired, and purchases of intangible and other assets		(1,405	)		(65,029	)		(3,254	)		(66,215	)
Purchases of investments		(2,050	)		(4,258	)		(3,670	)		(12,718	)
Maturities of investments		2,604			4,150			4,740			19,868
Sales of investments		2,559			1,600			4,527			6,930
Other, net		(16	)		1,347			(929	)		365
Net cash used in investing		(14,112	)		(71,925	)		(29,313	)		(71,422	)
Effect of foreign exchange rates on cash and cash equivalents		(294	)		72			(172	)		(27	)
Net change in cash and cash equivalents		(3,358	)		(63,147	)		(833	)		(17,399	)
Cash and cash equivalents, beginning of period		20,840			80,452			18,315			34,704
Cash and cash equivalents, end of period	$	17,482		$	17,305		$	17,482		$	17,305

Refer to accompanying notes.

6

PART I

Item 1

STOCKHOLDERS’ EQUITY STATEMENTS

(In millions, except per share amounts) (Unaudited)	Three Months Ended December 31,							Six Months Ended December 31,
	2024			2023				2024			2023
Common stock and paid-in capital
Balance, beginning of period	$	102,976		$	95,508		$	100,923		$	93,718
Common stock issued		256			261			962			946
Common stock repurchased		(1,491	)		(1,300	)		(2,976	)		(2,701	)
Stock-based compensation expense		3,089			2,828			5,921			5,335
Other, net		(1	)		183			(1	)		182
Balance, end of period		104,829			97,480			104,829			97,480
Retained earnings
Balance, beginning of period		188,929			132,143			173,144			118,848
Net income		24,108			21,870			48,775			44,161
Common stock cash dividends		(6,169	)		(5,574	)		(12,340	)		(11,145	)
Common stock repurchased		(3,386	)		(2,702	)		(6,097	)		(6,127	)
Balance, end of period		203,482			145,737			203,482			145,737
Accumulated other comprehensive loss
Balance, beginning of period		(4,182	)		(6,937	)		(5,590	)		(6,343	)
Other comprehensive income (loss)		(1,434	)		1,988			(26	)		1,394
Balance, end of period		(5,616	)		(4,949	)		(5,616	)		(4,949	)
Total stockholders’ equity	$	302,695		$	238,268		$	302,695		$	238,268
Cash dividends declared per common share	$	0.83		$	0.75		$	1.66		$	1.50

Refer to accompanying notes.

7

PART I

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 and Form 8-K filed with the U.S. Securities and Exchange Commission on July 30, 2024 and December 3, 2024, respectively.

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.

8

PART I

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.

9

PART I

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 both December 31, 2024 and June 30, 2024, long-term accounts receivable, net of allowance for doubtful accounts, was $4.9 billion and is included in other long-term assets in our consolidated balance sheets.

As of December 31, 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 customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of December 31, 2024 and June 30, 2024, our financing receivables, net were $3.1 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.

10

PART I

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.

Income Statement – Disaggregation of Income Statement Expenses

In November 2024, the FASB issued a new standard to expand disclosures about income statement expenses. The guidance requires disaggregation of certain costs and expenses included in each relevant expense caption on our consolidated income statements in a separate note to the financial statements at each interim and annual reporting period, including amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The standard will be effective for us beginning with our annual reporting for fiscal year 2028 and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of this standard on our 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 per share amounts)	Three Months Ended December 31,					Six Months Ended December 31,
	2024		2023			2024		2023
Net income available for common shareholders (A)	$	24,108	$	21,870	$	48,775	$	44,161
Weighted average outstanding shares of common stock (B)		7,435		7,432		7,434		7,431
Dilutive effect of stock-based awards		33		36		35		34
Common stock and common stock equivalents (C)		7,468		7,468		7,469		7,465
Earnings Per Share
Basic (A/B)	$	3.24	$	2.94	$	6.56	$	5.94
Diluted (A/C)	$	3.23	$	2.93	$	6.53	$	5.92

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

11

PART I

Item 1

NOTE 3 — OTHER INCOME (EXPENSE), NET

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

(In millions)	Three Months Ended December 31,						Six Months Ended December 31,
	2024			2023			2024			2023
Interest and dividends income	$	600		$	734		$	1,281		$	1,900
Interest expense		(594	)		(909	)		(1,176	)		(1,434	)
Net recognized gains (losses) on investments		(860	)		69			(397	)		(38	)
Net losses on derivatives		(116	)		(267	)		(454	)		(174	)
Net gains (losses) on foreign currency remeasurements		(153	)		36			23			(65	)
Other, net		(1,165	)		(169	)		(1,848	)		(306	)
Total	$	(2,288	)	$	(506	)	$	(2,571	)	$	(117	)

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 December 31,					Six Months Ended December 31,
	2024			2023			2024			2023
Realized gains from sales of available-for-sale securities	$	9		$	4		$	17		$	6
Realized losses from sales of available-for-sale securities		(19	)		(29	)		(34	)		(54	)
Impairments and allowance for credit losses		(14	)		18			(2	)		12
Total	$	(24	)	$	(7	)	$	(19	)	$	(36	)

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

(In millions)	Three Months Ended December 31,						Six Months Ended December 31,
	2024			2023			2024			2023
Net realized gains (losses) on investments sold	$	(8	)	$	(31	)	$	57		$	14
Net unrealized gains on investments still held		25			286			437			163
Impairments of investments		(853	)		(179	)		(872	)		(179	)
Total	$	(836	)	$	76		$	(378	)	$	(2	)

12

PART I

Item 1

NOTE 4 — INVESTMENTS

Investment Components

The components of investments were as follows:

(In millions)	Fair Value Level	Adjusted Cost Basis		Unrealized Gains		Unrealized Losses			Recorded Basis		Cash and Cash Equivalents		Short-term Investments		Equity and Other Investments
December 31, 2024
Changes in Fair Value Recorded in Other Comprehensive Income
Commercial paper	Level 2	$	3,515	$	0	$	0		$	3,515	$	3,515	$	0	$	0
Certificates of deposit	Level 2		3,349		0		0			3,349		3,302		47		0
U.S. government securities	Level 1		46,013		1		(2,233	)		43,781		18		43,763		0
U.S. agency securities	Level 2		11		0		0			11		0		11		0
Foreign government bonds	Level 2		311		7		(17	)		301		0		301		0
Mortgage- and asset-backed securities	Level 2		987		5		(33	)		959		0		959		0
Corporate notes and bonds	Level 2		8,693		38		(198	)		8,533		0		8,533		0
Corporate notes and bonds	Level 3		2,376		27		(3	)		2,400		0		123		2,277
Municipal securities	Level 2		254		1		(11	)		244		0		244		0
Municipal securities	Level 3		104		0		(16	)		88		0		88		0
Total debt investments		$	65,613	$	79	$	(2,511	)	$	63,181	$	6,835	$	54,069	$	2,277
Changes in Fair Value Recorded in Net Income
Equity investments	Level 1								$	4,425	$	1,000	$	0	$	3,425
Equity investments	Other									9,879		0		0		9,879
Total equity investments									$	14,304	$	1,000	$	0	$	13,304
Cash									$	9,647	$	9,647	$	0	$	0
Derivatives, net (a)										4		0		4		0
Total									$	87,136	$	17,482	$	54,073	$	15,581

13

PART I

Item 1

(In millions)	Fair Value Level	Adjusted Cost Basis		Unrealized Gains		Unrealized Losses			Recorded Basis		Cash and Cash Equivalents		Short-term Investments		Equity and Other Investments
June 30, 2024
Changes in Fair Value Recorded in Other Comprehensive Income
Commercial paper	Level 2	$	4,666	$	0	$	0		$	4,666	$	4,666	$	0	$	0
Certificates of deposit	Level 2		1,547		0		0			1,547		1,503		44		0
U.S. government securities	Level 1		49,603		4		(2,948	)		46,659		14		46,645		0
U.S. agency securities	Level 2		17		0		0			17		0		17		0
Foreign government bonds	Level 2		319		3		(16	)		306		0		306		0
Mortgage- and asset-backed securities	Level 2		944		3		(35	)		912		0		912		0
Corporate notes and bonds	Level 2		9,106		28		(318	)		8,816		0		8,816		0
Corporate notes and bonds	Level 3		1,641		0		(1	)		1,640		0		140		1,500
Municipal securities	Level 2		262		0		(13	)		249		0		249		0
Municipal securities	Level 3		104		0		(17	)		87		0		87		0
Total debt investments		$	68,209	$	38	$	(3,348	)	$	64,899	$	6,183	$	57,216	$	1,500
Changes in Fair Value Recorded in Net Income
Equity investments	Level 1								$	3,547	$	561	$	0	$	2,986
Equity investments	Other									10,114		0		0		10,114
Total equity investments									$	13,661	$	561	$	0	$	13,100
Cash									$	11,571	$	11,571	$	0	$	0
Derivatives, net (a)										12		0		12		0
Total									$	90,143	$	18,315	$	57,228	$	14,600

(a)Refer to Note 5 – Derivatives for further information on the fair value of our derivative instruments.

Equity investments presented as “Other” in the tables above include investments without readily determinable fair values measured at cost with adjustments for observable changes in price or impairments, measured using the equity method, or measured at fair value using net asset value as a practical expedient which are not categorized in the fair value hierarchy. As of December 31, 2024 and June 30, 2024, equity investments without readily determinable fair values measured at cost with adjustments for observable changes in price or impairments were $2.9 billion and $3.9 billion, respectively, and equity investments measured using the equity method were $6.8 billion and $6.0 billion, respectively.

14

PART I

Item 1

Unrealized Losses on Debt Investments

Debt 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
December 31, 2024
U.S. government and agency securities	$	871	$	(61	)	$	42,775	$	(2,172	)	$	43,646	$	(2,233	)
Foreign government bonds		99		(4	)		127		(13	)		226		(17	)
Mortgage- and asset-backed securities		277		(6	)		244		(27	)		521		(33	)
Corporate notes and bonds		1,781		(17	)		4,339		(184	)		6,120		(201	)
Municipal securities		0		0			237		(27	)		237		(27	)
Total	$	3,028	$	(88	)	$	47,722	$	(2,423	)	$	50,750	$	(2,511	)

	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, 2024
U.S. government and agency securities	$	529	$	(12	)	$	45,821	$	(2,936	)	$	46,350	$	(2,948	)
Foreign government bonds		79		(2	)		180		(14	)		259		(16	)
Mortgage- and asset-backed securities		201		(1	)		409		(34	)		610		(35	)
Corporate notes and bonds		1,310		(9	)		5,779		(310	)		7,089		(319	)
Municipal securities		38		(1	)		243		(29	)		281		(30	)
Total	$	2,157	$	(25	)	$	52,432	$	(3,323	)	$	54,589	$	(3,348	)

Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Management does not believe any remaining unrealized losses represent impairments based on our evaluation of available evidence.

Debt Investment Maturities

The following table outlines maturities of our debt investments as of December 31, 2024:

(In millions)	Adjusted Cost Basis		Estimated Fair Value
December 31, 2024
Due in one year or less	$	22,927	$	22,788
Due after one year through five years		33,344		31,774
Due after five years through 10 years		7,934		7,325
Due after 10 years		1,408		1,294
Total	$	65,613	$	63,181

NOTE 5 — DERIVATIVES

We use derivative instruments to manage risks related to foreign currencies, interest rates, equity prices, 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.

15

PART I

Item 1

Foreign Currencies

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.

Foreign currency risks related to certain Euro-denominated debt are hedged using foreign exchange forward contracts that are designated as cash flow hedging instruments.

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.

Interest Rate

Interest rate risks related to certain fixed-rate debt are hedged using interest rate swaps that are designated as fair value hedging instruments to effectively convert the fixed interest rates to floating interest rates.

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 option, futures, and swap contracts. These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below.

Equity

Securities held in our equity investments portfolio are subject to market price risk. At times, we may hold options, futures, and swap contracts. These contracts are not designated as hedging instruments.

Credit

Our fixed-income portfolio is diversified and consists primarily of investment-grade securities. We use credit default swap contracts to manage credit exposures relative to broad-based indices and to facilitate portfolio diversification. These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below.

Credit-Risk-Related Contingent Features

Certain 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 December 31, 2024, 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.

The following table presents the notional amounts of our outstanding derivative instruments measured in U.S. dollar equivalents:

(In millions)	December 31, 2024		June 30, 2024
Designated as Hedging Instruments
Foreign exchange contracts purchased	$	1,492	$	1,492
Interest rate contracts purchased		1,126		1,100
Not Designated as Hedging Instruments
Foreign exchange contracts purchased		7,791		7,167
Foreign exchange contracts sold		30,921		31,793
Equity contracts purchased		5,198		4,016
Equity contracts sold		2,170		2,165
Other contracts purchased		2,636		2,113
Other contracts sold		1,162		811

16

PART I

Item 1

Fair Values of Derivative Instruments

The following table presents our derivative instruments:

(In millions)	Derivative Assets				Derivative Liabilities		Derivative Assets			Derivative Liabilities
	December 31, 2024						June 30, 2024
Designated as Hedging Instruments
Foreign exchange contracts	$	9		$	(88	)	$	24		$	(76	)
Interest rate contracts		17			0			19			0
Not Designated as Hedging Instruments
Foreign exchange contracts		835			(325	)		213			(230	)
Equity contracts		19			(1,018	)		63			(491	)
Other contracts		4			(21	)		12			(3	)
Gross amounts of derivatives		884			(1,452	)		331			(800	)
Gross amounts of derivatives offset in the balance sheets		(301	)		303			(151	)		152
Cash collateral received		0			(156	)		0			(104	)
Net amounts of derivatives	$	583		$	(1,305	)	$	180		$	(752	)
Reported as
Short-term investments	$	4		$	0		$	12		$	0
Other current assets		561			0			149			0
Other long-term assets		18			0			19			0
Other current liabilities		0			(764	)		0			(401	)
Other long-term liabilities		0			(541	)		0			(351	)
Total	$	583		$	(1,305	)	$	180		$	(752	)

Gross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected to offset were $858 million and $1.4 billion, respectively, as of December 31, 2024, and $304 million and $800 million, respectively, as of June 30, 2024.

The following table presents the fair value of our derivatives instruments on a gross basis:

(In millions)	Level 1				Level 2		Level 3			Total
December 31, 2024
Derivative assets	$	0		$	878		$	6		$	884
Derivative liabilities		0			(1,427	)		(25	)		(1,452	)
June 30, 2024
Derivative assets		0			327			4			331
Derivative liabilities		(1	)		(799	)		0			(800	)

17

PART I

Item 1

Gains (losses) on derivative instruments recognized in other income (expense), net were as follows:

(In millions)		Three Months Ended December 31,						Six Months Ended December 31,
		2024			2023			2024			2023
Designated as Fair Value Hedging Instruments
Interest rate contracts
Derivatives	$	(18	)	$	22		$	2		$	6
Hedged items		8			(34	)		(24	)		(31	)
Designated as Cash Flow Hedging Instruments
Foreign exchange contracts
Amount reclassified from accumulated other comprehensive loss		(106	)		51			(57	)		5
Not Designated as Hedging Instruments
Foreign exchange contracts		1,138			(334	)		755			(128	)
Equity contracts		(111	)		(287	)		(459	)		(174	)
Other contracts		(26	)		36			(2	)		3

Gains (losses), net of tax, on derivative instruments recognized in our consolidated comprehensive income statements were as follows:

(In millions)	Three Months Ended December 31,					Six Months Ended December 31,
	2024			2023		2024			2023
Designated as Cash Flow Hedging Instruments
Foreign exchange contracts
Included in effectiveness assessment	$	(50	)	$	37	$	(21	)	$	22

NOTE 6 — INVENTORIES

The components of inventories were as follows:

(In millions)
	December 31, 2024		June 30, 2024
Raw materials	$	345	$	394
Work in process		7		7
Finished goods		557		845
Total	$	909	$	1,246

NOTE 7 — BUSINESS COMBINATIONS

Activision Blizzard, Inc.

On October 13, 2023, we completed our acquisition of Activision Blizzard, Inc. (“Activision Blizzard”) for a total purchase price of $75.4 billion, consisting primarily of cash. Activision Blizzard is a leader in game development and an interactive entertainment content publisher. The acquisition will accelerate the growth in our gaming business across mobile, PC, console, and cloud gaming. The financial results of Activision Blizzard have been included in our consolidated financial statements since the date of the acquisition. Activision Blizzard is reported as part of our More Personal Computing segment.

18

PART I

Item 1

The allocation of the purchase price to the assets acquired and liabilities assumed was completed as of September 30, 2024. The major classes of assets and liabilities to which we have allocated the purchase price were as follows:

(In millions)
Cash and cash equivalents	$	12,976
Goodwill		51,001
Intangible assets		21,969
Other assets		2,503
Long-term debt		(2,799	)
Long-term income taxes		(1,946	)
Deferred income taxes		(4,676	)
Other liabilities		(3,620	)
Total purchase price	$	75,408

Goodwill was assigned to our More Personal Computing segment. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of Activision Blizzard. Substantially all of the goodwill is expected to be non-deductible for income tax purposes.

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

(In millions, except average life)	Amount		Weighted Average Life
Marketing-related	$	11,619		24 years
Technology-based		9,689		4 years
Customer-related		661		4 years
Fair value of intangible assets acquired	$	21,969		15 years

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, 2022:

(In millions, except per share amounts)		Three Months Ended December 31,		Six Months Ended December 31,
	2023		2023
Revenue	$	62,297	$	120,857
Net income		22,025		44,334
Diluted earnings per share		2.95		5.94

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.

NOTE 8 — GOODWILL

Changes in the carrying amount of goodwill were as follows:

(In millions)	June 30, 2024		Acquisitions		Other			December 31, 2024
Productivity and Business Processes	$	31,361	$	0	$	(29	)	$	31,332
Intelligent Cloud		25,648		0		(1	)		25,647
More Personal Computing		62,211		0		1			62,212
Total	$	119,220	$	0	$	(29	)	$	119,191

We have recast certain prior period amounts to conform to the way we internally manage and monitor our business. Refer to Note 1 – Accounting Policies for further information.

19

PART I

Item 1

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 table above. Also included in “Other” are business dispositions and transfers between segments due to reorganizations, as applicable.

As discussed in Note 1 – Accounting Policies, during the first quarter of fiscal year 2025 we made changes to our segments. These segment changes also resulted in changes to our reporting units. We reallocated goodwill across impacted reporting units using a relative fair value approach. In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to the reallocation and determined that no impairment existed.

NOTE 9 — 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
	December 31, 2024							June 30, 2024
Marketing-related	$	16,489	$	(3,499	)	$	12,990	$	16,500	$	(3,101	)	$	13,399
Technology-based		22,481		(12,785	)		9,696		21,913		(10,741	)		11,172
Customer-related		6,030		(3,444	)		2,586		6,038		(3,051	)		2,987
Contract-based		135		(22	)		113		58		(19	)		39
Total	$	45,135	$	(19,750	)	$	25,385	$	44,509	$	(16,912	)	$	27,597

Intangible assets amortization expense was $1.5 billion and $3.0 billion for the three and six months ended December 31, 2024, respectively, and $1.3 billion and $2.0 billion for the three and six months ended December 31, 2023, respectively.

The following table outlines the estimated future amortization expense related to intangible assets held as of December 31, 2024:

(In millions)
Year Ending June 30,
2025 (excluding the six months ended December 31, 2024)	$	3,075
2026		4,576
2027		2,850
2028		1,986
2029		1,804
Thereafter		11,094
Total	$	25,385

20

PART I

Item 1

NOTE 10 — DEBT

Short-term Debt

As of December 31, 2024, we had no commercial paper issued or outstanding. As of June 30, 2024, we had $6.7 billion of commercial paper issued and outstanding, with a weighted average interest rate of 5.4% and maturities ranging from 28 days to 152 days. The estimated fair value of this commercial paper approximates its carrying value.

Long-term Debt

The components of long-term debt were as follows:

(In millions, issuance by calendar year)	Maturities (calendar year)				Stated Interest Rate				Effective Interest Rate			December 31, 2024			June 30, 2024
2009 issuance of $3.8 billion				2039				5.20%			5.24%	$	520		$	520
2010 issuance of $4.8 billion				2040				4.50%			4.57%		486			486
2011 issuance of $2.3 billion				2041				5.30%			5.36%		718			718
2012 issuance of $2.3 billion				2042				3.50%			3.57%		454			454
2013 issuance of $5.2 billion				2043		3.75%	–	4.88%	3.83%	–	4.92%		314			314
2013 issuance of €4.1 billion		2028	–	2033		2.63%	–	3.13%	2.69%	–	3.22%		2,382			2,465
2015 issuance of $23.8 billion		2025	–	2055		2.70%	–	4.75%	2.77%	–	4.78%		9,805			9,805
2016 issuance of $19.8 billion		2026	–	2056		2.40%	–	3.95%	2.46%	–	4.03%		7,930			7,930
2017 issuance of $17.1 billion		2026	–	2057		3.30%	–	4.50%	3.38%	–	5.49%		6,833			6,833
2020 issuance of $10.1 billion		2030	–	2060		1.35%	–	2.68%	2.53%	–	5.43%		10,111			10,111
2021 issuance of $8.2 billion		2052	–	2062		2.92%	–	3.04%	2.92%	–	3.04%		8,185			8,185
2023 issuance of $0.1 billion		2026	–	2050		1.35%	–	4.50%	5.16%	–	5.49%		56			56
2024 issuance of $3.3 billion		2026	–	2050		1.35%	–	4.50%	5.16%	–	5.49%		3,344			3,344
Total face value													51,138			51,221
Unamortized discount and issuance costs													(1,191	)		(1,227	)
Hedge fair value adjustments (a)													(57	)		(81	)
Premium on debt exchange													(4,920	)		(4,976	)
Total debt													44,970			44,937
Current portion of long-term debt													(5,248	)		(2,249	)
Long-term debt												$	39,722		$	42,688

(a)Refer to Note 5 – Derivatives for further information on the interest rate swaps related to fixed-rate debt.

As of December 31, 2024 and June 30, 2024, the estimated fair value of long-term debt, including the current portion, was $42.0 billion and $42.3 billion, respectively. The estimated fair values are based on Level 2 inputs.

Debt in the table above is comprised of senior unsecured obligations and ranks equally with our other outstanding obligations. Interest is paid semi-annually, except for the Euro-denominated debt, which is paid annually.

The following table outlines maturities of our long-term debt, including the current portion, as of December 31, 2024:

(In millions)
Year Ending June 30,
2025 (excluding the six months ended December 31, 2024)	$	2,250
2026		3,000
2027		9,250
2028		0
2029		1,812
Thereafter		34,826
Total	$	51,138

21

PART I

Item 1

NOTE 11 — INCOME TAXES

Effective Tax Rate

Our effective tax rate was 18% for both the three months ended December 31, 2024 and 2023, and 18% for both the six months ended December 31, 2024 and 2023. Our effective tax rate for the three and six months ended December 31, 2024 was primarily impacted by tax benefits from tax law changes in the prior fiscal year, including the delay of the effective date of final foreign tax credit regulations, and changes in the mix of our earnings and tax expenses between the U.S. and foreign countries.

Our effective tax rate was lower than the U.S. federal statutory rate for the three and six months ended December 31, 2024, primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland.

Uncertain Tax Positions

As of December 31, 2024 and June 30, 2024, unrecognized tax benefits and other income tax liabilities were $25.8 billion and $24.9 billion, respectively, and are included in long-term income taxes in our consolidated balance sheets.

We remain under audit by the IRS for tax years 2014 to 2017. With respect to the audit for tax years 2004 to 2013, on September 26, 2023, we received Notices of Proposed Adjustment (“NOPAs”) from the IRS. The primary issues in the NOPAs relate to intercompany transfer pricing. In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest. As of December 31, 2024, we believe our allowances for income tax contingencies are adequate. We disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals office and, if necessary, judicial proceedings. We 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 income 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 2024, 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 12 — UNEARNED REVENUE

Unearned revenue by segment was as follows:

(In millions)
	December 31, 2024		June 30, 2024
Productivity and Business Processes	$	33,582	$	43,599
Intelligent Cloud		10,979		13,683
More Personal Computing		3,484		2,902
Total	$	48,045	$	60,184

We have recast certain prior period amounts to conform to the way we internally manage and monitor our business. Refer to Note 1 – Accounting Policies for further information.

Changes in unearned revenue were as follows:

(In millions)
Six Months Ended December 31, 2024
Balance, beginning of period	$	60,184
Deferral of revenue		74,211
Recognition of unearned revenue		(86,350	)
Balance, end of period	$	48,045

22

PART I

Item 1

Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $304 billion as of December 31, 2024, of which $298 billion is related to the commercial portion of revenue. We expect to recognize approximately 40% of our total company remaining performance obligation revenue over the next 12 months and the remainder thereafter.

NOTE 13 — LEASES

We have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. Our leases have remaining lease terms of less than 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)	Three Months Ended December 31,					Six Months Ended December 31,
		2024		2023		2024		2023
Operating lease cost	$	1,293	$	817	$	2,453	$	1,591
Finance lease cost:
Amortization of right-of-use assets	$	830	$	408	$	1,524	$	788
Interest on lease liabilities		337		168		611		317
Total finance lease cost	$	1,167	$	576	$	2,135	$	1,105

Supplemental cash flow information related to leases was as follows:

(In millions)	Three Months Ended December 31,					Six Months Ended December 31,
		2024		2023		2024		2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	962	$	803	$	2,169	$	1,597
Operating cash flows from finance leases		319		168		594		317
Financing cash flows from finance leases		480		288		1,282		573
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		3,098		847		4,991		2,651
Finance leases		6,435		1,796		10,767		3,500

23

PART I

Item 1

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)
	December 31, 2024			June 30, 2024
Operating Leases
Operating lease right-of-use assets	$	22,816		$	18,961
Other current liabilities	$	4,608		$	3,580
Operating lease liabilities		17,254			15,497
Total operating lease liabilities	$	21,862		$	19,077
Finance Leases
Property and equipment, at cost	$	42,539		$	32,248
Accumulated depreciation		(7,650	)		(6,386	)
Property and equipment, net	$	34,889		$	25,862
Other current liabilities	$	2,673		$	2,349
Other long-term liabilities		33,404			24,796
Total finance lease liabilities	$	36,077		$	27,145
Weighted Average Remaining Lease Term
Operating leases		7 years			7 years
Finance leases		12 years			12 years
Weighted Average Discount Rate
Operating leases		3.4%			3.3%
Finance leases		4.0%			3.9%

The following table outlines maturities of our lease liabilities as of December 31, 2024:

(In millions)
Year Ending June 30,	Operating Leases			Finance Leases
2025 (excluding the six months ended December 31, 2024)	$	2,726		$	1,979
2026		4,920			4,149
2027		4,063			4,180
2028		3,025			4,175
2029		2,203			3,528
Thereafter		7,433			28,350
Total lease payments		24,370			46,361
Less imputed interest		(2,508	)		(10,284	)
Total	$	21,862		$	36,077

As of December 31, 2024, we had additional operating and finance leases, primarily for datacenters, that had not yet commenced of $6.0 billion and $99.4 billion, respectively. These operating and finance leases will commence between fiscal year 2025 and fiscal year 2030 with lease terms of 1 year to 25 years.

24

PART I

Item 1

NOTE 14 — CONTINGENCIES

U.S. Cell Phone Litigation

Microsoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a defendant in 45 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. Twelve of these cases were 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 to the District of Columbia Court of Appeals challenging the standard for evaluating expert scientific evidence. 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 were stricken by the court. A hearing on general causation took place in September of 2022. In April of 2023, the court granted defendants’ motion to strike the testimony of plaintiffs’ experts that cell phones cause brain cancer and entered an order excluding all of plaintiffs’ experts from testifying. The parties agreed to a stipulated dismissal of the consolidated cases to allow plaintiffs to appeal the expert testimony order. Plaintiffs appealed the court’s order in August of 2023, and the appeal was argued in January of 2025. A hearing on the status of the stayed cases occurred in December of 2023. In July 2024, the court entered summary judgment in nine of the stayed cases on the grounds that plaintiffs had agreed to be bound by the general causation outcome in the consolidated cases.

Irish Data Protection Commission Matter

In 2018, the Irish Data Protection Commission (“IDPC”) began investigating a complaint against LinkedIn as to whether LinkedIn’s targeted advertising practices violated the recently implemented European Union General Data Protection Regulation (“GDPR”). Microsoft cooperated throughout the period of inquiry. In October 2024, the IDPC provided LinkedIn with a final decision alleging GDPR violations and assessing a fine. In November 2024, LinkedIn appealed the final decision to the Irish courts.

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 December 31, 2024, we accrued aggregate legal liabilities of $510 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $800 million 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.

25

PART I

Item 1

NOTE 15 — STOCKHOLDERS’ EQUITY

Share Repurchases

On September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $60.0 billion in share repurchases. This share repurchase program commenced in November 2021, has no expiration date, and may be terminated at any time. As of December 31, 2024, $4.0 billion remained of this $60.0 billion share repurchase program.

On September 16, 2024, our Board of Directors approved a share repurchase program authorizing up to $60.0 billion in share repurchases. This share repurchase program will commence following completion of the program approved on September 14, 2021, has no expiration date, and may be terminated at any time.

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

(In millions)	Shares		Amount			Shares		Amount
Fiscal Year				2025					2024
First Quarter		7		$	2,800		11		$	3,560
Second Quarter		8			3,500		7			2,800
Total		15		$	6,300		18		$	6,360

All repurchases were made using cash resources. All shares repurchased were under the share repurchase program approved on September 14, 2021. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $1.5 billion and $2.8 billion for the three and six months ended December 31, 2024, respectively, and $1.2 billion and $2.5 billion for the three and six months ended December 31, 2023, respectively.

Dividends

Our Board of Directors declared the following dividends:

Declaration Date	Record Date	Payment Date		Dividend Per Share		Amount
Fiscal Year 2025						(In millions)
September 16, 2024	November 21, 2024	December 12, 2024	$	0.83	$	6,170
December 3, 2024	February 20, 2025	March 13, 2025		0.83		6,171
Total			$	1.66	$	12,341
Fiscal Year 2024
September 19, 2023	November 16, 2023	December 14, 2023	$	0.75	$	5,574
November 28, 2023	February 15, 2024	March 14, 2024		0.75		5,573
Total			$	1.50	$	11,147

The dividend declared on December 3, 2024 was included in other current liabilities as of December 31, 2024.

26

PART I

Item 1

NOTE 16 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

(In millions)	Three Months Ended December 31,							Six Months Ended December 31,
		2024			2023			2024			2023
Derivatives
Balance, beginning of period	$	(13	)	$	(6	)	$	(3	)	$	(27	)
Unrealized gains (losses), net of tax of $(13), $10, $(6), and $6		(50	)		37			(21	)		22
Reclassification adjustments for (gains) losses included in other income (expense), net		106			(51	)		57			(5	)
Tax expense (benefit) included in provision for income taxes		(22	)		11			(12	)		1
Amounts reclassified from accumulated other comprehensive loss		84			(40	)		45			(4	)
Net change related to derivatives, net of tax of $9, $(1), $6, and $5		34			(3	)		24			18
Balance, end of period	$	21		$	(9	)	$	21		$	(9	)
Investments
Balance, beginning of period	$	(1,511	)	$	(3,842	)	$	(2,625	)	$	(3,582	)
Unrealized gains (losses), net of tax of $(121), $352, $176, and $277		(453	)		1,325			665			1,042
Reclassification adjustments for losses included in other income (expense), net		24			7			19			36
Tax benefit included in provision for income taxes		(5	)		(1	)		(4	)		(7	)
Amounts reclassified from accumulated other comprehensive loss		19			6			15			29
Net change related to investments, net of tax of $(116), $353, $180, and $284		(434	)		1,331			680			1,071
Balance, end of period	$	(1,945	)	$	(2,511	)	$	(1,945	)	$	(2,511	)
Translation Adjustments and Other
Balance, beginning of period	$	(2,658	)	$	(3,089	)	$	(2,962	)	$	(2,734	)
Translation adjustments and other, net of tax of $0, $0, $0, and $0		(1,034	)		660			(730	)		305
Balance, end of period	$	(3,692	)	$	(2,429	)	$	(3,692	)	$	(2,429	)
Accumulated other comprehensive loss, end of period	$	(5,616	)	$	(4,949	)	$	(5,616	)	$	(4,949	)

NOTE 17 — 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.

We have recast certain prior period amounts to conform to the way we internally manage and monitor our business. Refer to Note 1 – Accounting Policies for further information.

27

PART I

Item 1

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:

•Microsoft 365 Commercial products and cloud services, including Microsoft 365 Commercial cloud, comprising Microsoft 365 Commercial, Enterprise Mobility + Security, the cloud portion of Windows Commercial, the per-user portion of Power BI, Exchange, SharePoint, Microsoft Teams, Microsoft 365 Security and Compliance, Microsoft Viva, and Microsoft 365 Copilot; and Microsoft 365 Commercial products, comprising Windows Commercial on-premises and Office licensed on-premises.

•Microsoft 365 Consumer products and cloud services, including Microsoft 365 Consumer subscriptions, Office licensed on-premises, and other consumer services.

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

•Dynamics products and cloud services, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, CRM, Power Apps, and Power Automate; and on-premises ERP and CRM applications.

Intelligent Cloud

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

•Server products and cloud services, including Azure and other cloud services, comprising cloud and AI consumption-based services, GitHub cloud services, Nuance Healthcare cloud services, virtual desktop offerings, and other cloud services; and Server products, comprising SQL Server, Windows Server, Visual Studio, System Center, related Client Access Licenses (“CALs”), and other on-premises offerings.

•Enterprise and partner services, including Enterprise Support Services, Industry Solutions, Nuance professional services, Microsoft Partner Network, and Learning Experience.

More Personal Computing

Our More Personal Computing segment consists of products and services that put customers at the center of the experience with our technology. This segment primarily comprises:

•Windows and Devices, including Windows, comprising Windows OEM licensing (Windows Pro and non-Pro licenses sold through the OEM channel), Windows Internet of Things, and patent licensing; and Devices, comprising Surface, HoloLens, and PC accessories.

•Gaming, including Xbox hardware and Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, third-party disc royalties, and other cloud services.

•Search and news advertising, comprising Bing (including Copilot), Microsoft News, Microsoft Edge, and third-party affiliates.

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.

28

PART I

Item 1

In addition, certain costs are incurred at a corporate level and allocated to our segments. These allocated costs generally include legal, including settlements and fines, information technology, human resources, finance, excise taxes, field selling, shared facilities services, customer service and support, and severance incurred as part of a corporate program. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated and is generally based on relative gross margin or relative headcount.

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

(In millions)	Three Months Ended December 31,					Six Months Ended December 31,
		2024		2023		2024		2023
Revenue
Productivity and Business Processes	$	29,437	$	25,854	$	57,754	$	51,080
Intelligent Cloud		25,544		21,525		49,636		41,538
More Personal Computing		14,651		14,641		27,827		25,919
Total	$	69,632	$	62,020	$	135,217	$	118,537
Operating Income
Productivity and Business Processes	$	16,885	$	14,515	$	33,401	$	28,812
Intelligent Cloud		10,851		9,555		21,354		18,463
More Personal Computing		3,917		2,962		7,450		6,652
Total	$	31,653	$	27,032	$	62,205	$	53,927

No sales to an individual customer or country other than the United States accounted for more than 10% of revenue for the three or six months ended December 31, 2024 or 2023. Revenue, classified by the major geographic areas in which our customers were located, was as follows:

(In millions)	Three Months Ended December 31,					Six Months Ended December 31,
		2024		2023		2024		2023
United States (a)	$	35,537	$	32,295	$	69,450	$	61,107
Other countries		34,095		29,725		65,767		57,430
Total	$	69,632	$	62,020	$	135,217	$	118,537

(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.

29

PART I

Item 1

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

(In millions)		Three Months Ended December 31,			Six Months Ended December 31,
		2024		2023	2024		2023
Server products and cloud services	$	23,641	$	19,597	$	45,796	$	37,659
Microsoft 365 Commercial products and cloud services		21,117		18,321		41,566		36,365
Gaming		6,581		7,111		12,202		11,030
LinkedIn		4,587		4,195		8,879		8,108
Windows and Devices		4,512		4,363		8,841		8,703
Search and news advertising		3,558		3,168		6,783		6,186
Enterprise and partner services		1,892		1,917		3,820		3,861
Dynamics products and cloud services		1,913		1,659		3,762		3,285
Microsoft 365 Consumer products and cloud services		1,821		1,679		3,548		3,322
Other		10		10		20		18
Total	$	69,632	$	62,020	$	135,217	$	118,537

Our Microsoft Cloud revenue, which includes Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365, was $40.9 billion and $79.8 billion for the three and six months ended December 31, 2024, respectively, and $33.7 billion and $65.6 billion for the three and six months ended December 31, 2023, respectively. These amounts are included in Microsoft 365 Commercial products and cloud services, Server products and cloud services, LinkedIn, and Dynamics 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.

30

PART I

Item 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Microsoft Corporation

Results of Review of Interim Financial Information

We have reviewed the accompanying consolidated balance sheet of Microsoft Corporation and subsidiaries (the "Company") as of December 31, 2024, the related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity for the three-month and six-month periods ended December 31, 2024 and 2023, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of June 30, 2024, and the related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity for the year then ended (not presented herein); and in our report dated July 30, 2024 (December 3, 2024 as to the effects of the retrospective adjustments in Notes 1, 8, 9, 13, and 19), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of June 30, 2024, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This interim financial information is the responsibility of the Company's management. 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 reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/S/ DELOITTE & TOUCHE LLP

Seattle, Washington

January 29, 2025

31

PART I

Item 2

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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: “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” (Part II, Item 1A of this Form 10-Q). 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” (Part I, Item 3 of this Form 10-Q), and “Risk Factors”. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

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, an