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 March 31, 2025
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 April 24, 2025
Common Stock, $0.00000625 par value per share	7,432,543,865 shares

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended March 31, 2025

INDEX

				Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		a)	Income Statements for the Three and Nine Months Ended March 31, 2025 and 2024	3
		b)	Comprehensive Income Statements for the Three and Nine Months Ended March 31, 2025 and 2024	4
		c)	Balance Sheets as of March 31, 2025 and June 30, 2024	5
		d)	Cash Flows Statements for the Three and Nine Months Ended March 31, 2025 and 2024	6
		e)	Stockholders’ Equity Statements for the Three and Nine Months Ended March 31, 2025 and 2024	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		63
	Item 5.	Other Information		64
	Item 6.	Exhibits		65
SIGNATURE				66

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 March 31,							Nine Months Ended March 31,
	2025			2024				2025			2024
Revenue:
Product	$	15,319		$	17,080		$	46,810		$	51,556
Service and other		54,747			44,778			158,473			128,839
Total revenue		70,066			61,858			205,283			180,395
Cost of revenue:
Product		3,037			4,339			10,187			13,834
Service and other		18,882			14,166			53,630			40,596
Total cost of revenue		21,919			18,505			63,817			54,430
Gross margin		48,147			43,353			141,466			125,965
Research and development		8,198			7,653			23,659			21,454
Sales and marketing		6,212			6,207			18,369			17,640
General and administrative		1,737			1,912			5,233			5,363
Operating income		32,000			27,581			94,205			81,508
Other expense, net		(623	)		(854	)		(3,194	)		(971	)
Income before income taxes		31,377			26,727			91,011			80,537
Provision for income taxes		5,553			4,788			16,412			14,437
Net income	$	25,824		$	21,939		$	74,599		$	66,100
Earnings per share:
Basic	$	3.47		$	2.95		$	10.03		$	8.90
Diluted	$	3.46		$	2.94		$	9.99		$	8.85
Weighted average shares outstanding:
Basic		7,434			7,431			7,434			7,431
Diluted		7,461			7,472			7,466			7,467

Refer to accompanying notes.

3

PART I

Item 1

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)	Three Months Ended March 31,						Nine Months Ended March 31,
	2025			2024				2025			2024
Net income	$	25,824		$	21,939		$	74,599		$	66,100
Other comprehensive income (loss), net of tax:
Net change related to derivatives		(20	)		10			4			28
Net change related to investments		450			(202	)		1,130			869
Translation adjustments and other		353			(294	)		(377	)		11
Other comprehensive income (loss)		783			(486	)		757			908
Comprehensive income	$	26,607		$	21,453		$	75,356		$	67,008

Refer to accompanying notes.

4

PART I

Item 1

BALANCE SHEETS

(In millions) (Unaudited)
	March 31, 2025			June 30, 2024
Assets
Current assets:
Cash and cash equivalents	$	28,828		$	18,315
Short-term investments		50,790			57,228
Total cash, cash equivalents, and short-term investments		79,618			75,543
Accounts receivable, net of allowance for doubtful accounts of $695 and $830		51,700			56,924
Inventories		848			1,246
Other current assets		24,478			26,021
Total current assets		156,644			159,734
Property and equipment, net of accumulated depreciation of $87,074 and $76,421		183,939			135,591
Operating lease right-of-use assets		24,475			18,961
Equity and other investments		16,035			14,600
Goodwill		119,329			119,220
Intangible assets, net		23,968			27,597
Other long-term assets		38,234			36,460
Total assets	$	562,624		$	512,163
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	26,250		$	21,996
Short-term debt		0			6,693
Current portion of long-term debt		2,999			2,249
Accrued compensation		10,579			12,564
Short-term income taxes		6,805			5,017
Short-term unearned revenue		44,636			57,582
Other current liabilities		22,937			19,185
Total current liabilities		114,206			125,286
Long-term debt		39,882			42,688
Long-term income taxes		25,061			27,931
Long-term unearned revenue		2,840			2,602
Deferred income taxes		2,522			2,618
Operating lease liabilities		17,686			15,497
Other long-term liabilities		38,536			27,064
Total liabilities		240,733			243,686
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 7,434 and 7,434		106,965			100,923
Retained earnings		219,759			173,144
Accumulated other comprehensive loss		(4,833	)		(5,590	)
Total stockholders’ equity		321,891			268,477
Total liabilities and stockholders’ equity	$	562,624		$	512,163

Refer to accompanying notes.

5

PART I

Item 1

CASH FLOWS STATEMENTS

(In millions) (Unaudited)	Three Months Ended March 31,							Nine Months Ended March 31,
	2025			2024				2025			2024
Operations
Net income	$	25,824		$	21,939		$	74,599		$	66,100
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other		8,740			6,027			22,950			15,907
Stock-based compensation expense		2,980			2,703			8,901			8,038
Net recognized losses (gains) on investments and derivatives		(298	)		49			553			261
Deferred income taxes		(2,244	)		(1,323	)		(4,835	)		(3,593	)
Changes in operating assets and liabilities:
Accounts receivable		(2,461	)		(2,028	)		5,598			6,055
Inventories		52			260			390			1,229
Other current assets		1,076			951			642			880
Other long-term assets		(518	)		(2,137	)		(3,368	)		(5,577	)
Accounts payable		1,179			648			1,221			(659	)
Unearned revenue		(1,032	)		(645	)		(12,923	)		(10,309	)
Income taxes		1,298			2,622			(1,081	)		2,493
Other current liabilities		2,839			2,803			576			215
Other long-term liabilities		(391	)		48			292			313
Net cash from operations		37,044			31,917			93,515			81,353
Financing
Proceeds from issuance (repayments) of debt, maturities of 90 days or less, net		0			(3,810	)		(5,746	)		6,392
Proceeds from issuance of debt		0			6,352			0			24,198
Repayments of debt		(2,250	)		(11,589	)		(3,216	)		(16,005	)
Common stock issued		546			522			1,508			1,468
Common stock repurchased		(4,781	)		(4,213	)		(13,874	)		(13,044	)
Common stock cash dividends paid		(6,169	)		(5,572	)		(17,913	)		(16,197	)
Other, net		(382	)		(498	)		(1,614	)		(1,006	)
Net cash used in financing		(13,036	)		(18,808	)		(40,855	)		(14,194	)
Investing
Additions to property and equipment		(16,745	)		(10,952	)		(47,472	)		(30,604	)
Acquisition of companies, net of cash acquired and divestitures, and purchases of intangible and other assets		(981	)		(1,575	)		(4,235	)		(67,790	)
Purchases of investments		(4,474	)		(2,183	)		(8,144	)		(14,901	)
Maturities of investments		6,721			3,350			11,461			23,218
Sales of investments		2,161			1,941			6,688			8,871
Other, net		604			(1,281	)		(325	)		(916	)
Net cash used in investing		(12,714	)		(10,700	)		(42,027	)		(82,122	)
Effect of foreign exchange rates on cash and cash equivalents		52			(80	)		(120	)		(107	)
Net change in cash and cash equivalents		11,346			2,329			10,513			(15,070	)
Cash and cash equivalents, beginning of period		17,482			17,305			18,315			34,704
Cash and cash equivalents, end of period	$	28,828		$	19,634		$	28,828		$	19,634

Refer to accompanying notes.

6

PART I

Item 1

STOCKHOLDERS’ EQUITY STATEMENTS

(In millions, except per share amounts) (Unaudited)	Three Months Ended March 31,							Nine Months Ended March 31,
	2025			2024				2025			2024
Common stock and paid-in capital
Balance, beginning of period	$	104,829		$	97,480		$	100,923		$	93,718
Common stock issued		546			522			1,508			1,468
Common stock repurchased		(1,390	)		(1,512	)		(4,366	)		(4,213	)
Stock-based compensation expense		2,980			2,703			8,901			8,038
Other, net		0			0			(1	)		182
Balance, end of period		106,965			99,193			106,965			99,193
Retained earnings
Balance, beginning of period		203,482			145,737			173,144			118,848
Net income		25,824			21,939			74,599			66,100
Common stock cash dividends		(6,168	)		(5,573	)		(18,508	)		(16,718	)
Common stock repurchased		(3,379	)		(2,709	)		(9,476	)		(8,836	)
Balance, end of period		219,759			159,394			219,759			159,394
Accumulated other comprehensive loss
Balance, beginning of period		(5,616	)		(4,949	)		(5,590	)		(6,343	)
Other comprehensive income (loss)		783			(486	)		757			908
Balance, end of period		(4,833	)		(5,435	)		(4,833	)		(5,435	)
Total stockholders’ equity	$	321,891		$	253,152		$	321,891		$	253,152
Cash dividends declared per common share	$	0.83		$	0.75		$	2.49		$	2.25

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 March 31, 2025 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 March 31, 2025 and June 30, 2024, other receivables related to activities to facilitate the purchase of server components were $10.8 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 March 31, 2025 and June 30, 2024, our financing receivables, net were $2.6 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 March 31,					Nine Months Ended March 31,
	2025		2024			2025		2024
Net income available for common shareholders (A)	$	25,824	$	21,939	$	74,599	$	66,100
Weighted average outstanding shares of common stock (B)		7,434		7,431		7,434		7,431
Dilutive effect of stock-based awards		27		41		32		36
Common stock and common stock equivalents (C)		7,461		7,472		7,466		7,467
Earnings Per Share
Basic (A/B)	$	3.47	$	2.95	$	10.03	$	8.90
Diluted (A/C)	$	3.46	$	2.94	$	9.99	$	8.85

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 March 31,						Nine Months Ended March 31,
	2025			2024			2025			2024
Interest and dividends income	$	597		$	619		$	1,878		$	2,519
Interest expense		(594	)		(800	)		(1,770	)		(2,234	)
Net recognized gains (losses) on investments		111			(25	)		(286	)		(63	)
Net gains (losses) on derivatives		187			(24	)		(267	)		(198	)
Net gains (losses) on foreign currency remeasurements		89			(138	)		112			(203	)
Other, net		(1,013	)		(486	)		(2,861	)		(792	)
Total	$	(623	)	$	(854	)	$	(3,194	)	$	(971	)

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 March 31,					Nine Months Ended March 31,
	2025			2024			2025			2024
Realized gains from sales of available-for-sale securities	$	8		$	8		$	25		$	14
Realized losses from sales of available-for-sale securities		(17	)		(24	)		(51	)		(78	)
Impairments and allowance for credit losses		3			3			1			15
Total	$	(6	)	$	(13	)	$	(25	)	$	(49	)

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

(In millions)	Three Months Ended March 31,						Nine Months Ended March 31,
	2025			2024			2025			2024
Net realized gains on investments sold	$	9		$	15		$	66		$	29
Net unrealized gains (losses) on investments still held		135			(7	)		572			156
Impairments of investments		(27	)		(20	)		(899	)		(199	)
Total	$	117		$	(12	)	$	(261	)	$	(14	)

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
March 31, 2025
Changes in Fair Value Recorded in Other Comprehensive Income
Commercial paper	Level 2	$	11,101	$	0	$	0		$	11,101	$	11,002	$	99	$	0
Certificates of deposit	Level 2		3,517		0		0			3,517		3,473		44		0
U.S. government securities	Level 1		42,349		7		(1,747	)		40,609		858		39,751		0
U.S. agency securities	Level 2		1,953		0		0			1,953		1,944		9		0
Foreign government bonds	Level 2		321		6		(13	)		314		1		313		0
Mortgage- and asset-backed securities	Level 2		1,610		6		(27	)		1,589		0		1,589		0
Corporate notes and bonds	Level 2		8,637		62		(139	)		8,560		0		8,560		0
Corporate notes and bonds	Level 3		2,410		0		(12	)		2,398		0		123		2,275
Municipal securities	Level 2		216		1		(9	)		208		0		208		0
Municipal securities	Level 3		104		0		(16	)		88		0		88		0
Total debt investments		$	72,218	$	82	$	(1,963	)	$	70,337	$	17,278	$	50,784	$	2,275
Changes in Fair Value Recorded in Net Income
Equity investments	Level 1								$	4,427	$	870	$	0	$	3,557
Equity investments	Other									9,930		0		0		9,930
Total equity investments									$	14,357	$	870	$	0	$	13,487
Cash									$	10,680	$	10,680	$	0	$	0
Derivatives, net (a)										279		0		6		273
Total									$	95,653	$	28,828	$	50,790	$	16,035

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 March 31, 2025 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
March 31, 2025
U.S. government and agency securities	$	492	$	(50	)	$	38,754	$	(1,697	)	$	39,246	$	(1,747	)
Foreign government bonds		66		(3	)		127		(10	)		193		(13	)
Mortgage- and asset-backed securities		649		(3	)		227		(24	)		876		(27	)
Corporate notes and bonds		1,720		(14	)		3,629		(137	)		5,349		(151	)
Municipal securities		0		0			212		(25	)		212		(25	)
Total	$	2,927	$	(70	)	$	42,949	$	(1,893	)	$	45,876	$	(1,963	)

	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 March 31, 2025:

(In millions)	Adjusted Cost Basis		Estimated Fair Value
March 31, 2025
Due in one year or less	$	31,746	$	31,609
Due after one year through five years		32,127		30,870
Due after five years through 10 years		6,919		6,530
Due after 10 years		1,426		1,328
Total	$	72,218	$	70,337

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.

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.

15

PART I

Item 1

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 March 31, 2025, 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)	March 31, 2025		June 30, 2024
Designated as Hedging Instruments
Foreign exchange contracts purchased	$	1,492	$	1,492
Interest rate contracts purchased		1,151		1,100
Not Designated as Hedging Instruments
Foreign exchange contracts purchased		9,641		7,167
Foreign exchange contracts sold		34,881		31,793
Equity contracts purchased		5,100		4,016
Equity contracts sold		2,170		2,165
Other contracts purchased		2,693		2,113
Other contracts sold		1,195		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
	March 31, 2025						June 30, 2024
Designated as Hedging Instruments
Foreign exchange contracts	$	26		$	(80	)	$	24		$	(76	)
Interest rate contracts		5			0			19			0
Not Designated as Hedging Instruments
Foreign exchange contracts		224			(751	)		213			(230	)
Equity contracts		282			(1,085	)		63			(491	)
Other contracts		13			(4	)		12			(3	)
Gross amounts of derivatives		550			(1,920	)		331			(800	)
Gross amounts of derivatives offset in the balance sheets		(142	)		145			(151	)		152
Cash collateral received		0			(126	)		0			(104	)
Net amounts of derivatives	$	408		$	(1,901	)	$	180		$	(752	)
Reported as
Short-term investments	$	6		$	0		$	12		$	0
Other current assets		124			0			149			0
Equity and other investments		273			0			0			0
Other long-term assets		5			0			19			0
Other current liabilities		0			(1,730	)		0			(401	)
Other long-term liabilities		0			(171	)		0			(351	)
Total	$	408		$	(1,901	)	$	180		$	(752	)

Gross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected to offset were $259 million and $1.9 billion, respectively, as of March 31, 2025, 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
March 31, 2025
Derivative assets	$	0		$	267		$	283	$	550
Derivative liabilities		0			(1,920	)		0		(1,920	)
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 March 31,						Nine Months Ended March 31,
		2025			2024			2025			2024
Designated as Fair Value Hedging Instruments
Interest rate contracts
Derivatives	$	3		$	(21	)	$	5		$	(15	)
Hedged items		(12	)		10			(36	)		(21	)
Designated as Cash Flow Hedging Instruments
Foreign exchange contracts
Amount reclassified from accumulated other comprehensive loss		50			(37	)		(7	)		(32	)
Not Designated as Hedging Instruments
Foreign exchange contracts		(372	)		299			383			171
Equity contracts		176			(22	)		(283	)		(196	)
Other contracts		18			(8	)		16			(5	)

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

(In millions)	Three Months Ended March 31,					Nine Months Ended March 31,
	2025		2024			2025			2024
Designated as Cash Flow Hedging Instruments
Foreign exchange contracts
Included in effectiveness assessment	$	20	$	(19	)	$	(1	)	$	3

NOTE 6 — INVENTORIES

The components of inventories were as follows:

(In millions)
	March 31, 2025		June 30, 2024
Raw materials	$	327	$	394
Work in process		13		7
Finished goods		508		845
Total	$	848	$	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 March 31,		Nine Months Ended March 31,
	2024		2024
Revenue	$	61,856	$	182,717
Net income		21,931		66,278
Diluted earnings per share		2.94		8.88

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		March 31, 2025
Productivity and Business Processes	$	31,361	$	0	$	20	$	31,381
Intelligent Cloud		25,648		0		7		25,655
More Personal Computing		62,211		0		82		62,293
Total	$	119,220	$	0	$	109	$	119,329

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
	March 31, 2025							June 30, 2024
Marketing-related	$	16,503	$	(3,703	)	$	12,800	$	16,500	$	(3,101	)	$	13,399
Technology-based		22,437		(13,813	)		8,624		21,913		(10,741	)		11,172
Customer-related		4,382		(2,001	)		2,381		6,038		(3,051	)		2,987
Contract-based		193		(30	)		163		58		(19	)		39
Total	$	43,515	$	(19,547	)	$	23,968	$	44,509	$	(16,912	)	$	27,597

Intangible assets amortization expense was $1.5 billion and $4.5 billion for the three and nine months ended March 31, 2025, respectively, and $1.4 billion and $3.4 billion for the three and nine months ended March 31, 2024, respectively.

The following table outlines the estimated future amortization expense related to intangible assets held as of March 31, 2025:

(In millions)
Year Ending June 30,
2025 (excluding the nine months ended March 31, 2025)	$	1,525
2026		4,582
2027		2,866
2028		2,007
2029		1,834
Thereafter		11,154
Total	$	23,968

20

PART I

Item 1

NOTE 10 — DEBT

Short-term Debt

As of March 31, 2025, 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			March 31, 2025			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%		2,484			2,465
2015 issuance of $23.8 billion		2025	–	2055		3.13%	–	4.75%	3.18%	–	4.78%		7,555			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													48,990			51,221
Unamortized discount and issuance costs													(1,171	)		(1,227	)
Hedge fair value adjustments (a)													(45	)		(81	)
Premium on debt exchange													(4,893	)		(4,976	)
Total debt													42,881			44,937
Current portion of long-term debt													(2,999	)		(2,249	)
Long-term debt												$	39,882		$	42,688

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

As of March 31, 2025 and June 30, 2024, the estimated fair value of long-term debt, including the current portion, was $40.2 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 March 31, 2025:

(In millions)
Year Ending June 30,
2025 (excluding the nine months ended March 31, 2025)	$	0
2026		3,000
2027		9,250
2028		0
2029		1,890
Thereafter		34,850
Total	$	48,990

21

PART I

Item 1

NOTE 11 — INCOME TAXES

Effective Tax Rate

Our effective tax rate was 18% for both the three months ended March 31, 2025 and 2024, and 18% for both the nine months ended March 31, 2025 and 2024. Our effective tax rate for the three months ended March 31, 2025 was primarily impacted by changes in the mix of our earnings and tax expenses between the U.S. and foreign countries. Our effective tax rate for the nine months ended March 31, 2025 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 nine months ended March 31, 2025, 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 March 31, 2025 and June 30, 2024, unrecognized tax benefits and other income tax liabilities were $26.4 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 March 31, 2025, 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)
	March 31, 2025		June 30, 2024
Productivity and Business Processes	$	34,244	$	43,599
Intelligent Cloud		10,240		13,683
More Personal Computing		2,992		2,902
Total	$	47,476	$	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)
Nine Months Ended March 31, 2025
Balance, beginning of period	$	60,184
Deferral of revenue		118,709
Recognition of unearned revenue		(131,417	)
Balance, end of period	$	47,476

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 $321 billion as of March 31, 2025, of which $315 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 March 31,					Nine Months Ended March 31,
		2025		2024		2025		2024
Operating lease cost	$	1,476	$	882	$	3,929	$	2,473
Finance lease cost:
Amortization of right-of-use assets	$	900	$	453	$	2,426	$	1,241
Interest on lease liabilities		374		190		986		507
Total finance lease cost	$	1,274	$	643	$	3,412	$	1,748

Supplemental cash flow information related to leases was as follows:

(In millions)	Three Months Ended March 31,					Nine Months Ended March 31,
		2025		2024		2025		2024
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	955	$	836	$	3,124	$	2,433
Operating cash flows from finance leases		344		190		938		507
Financing cash flows from finance leases		352		323		1,634		896
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		1,918		1,831		6,909		4,482
Finance leases		3,241		3,421		14,008		6,921

23

PART I

Item 1

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)
	March 31, 2025			June 30, 2024
Operating Leases
Operating lease right-of-use assets	$	24,475		$	18,961
Other current liabilities	$	5,238		$	3,580
Operating lease liabilities		17,686			15,497
Total operating lease liabilities	$	22,924		$	19,077
Finance Leases
Property and equipment, at cost	$	46,275		$	32,248
Accumulated depreciation		(8,650	)		(6,386	)
Property and equipment, net	$	37,625		$	25,862
Other current liabilities	$	2,889		$	2,349
Other long-term liabilities		36,325			24,796
Total finance lease liabilities	$	39,214		$	27,145
Weighted Average Remaining Lease Term
Operating leases		6 years			7 years
Finance leases		12 years			12 years
Weighted Average Discount Rate
Operating leases		3.5%			3.3%
Finance leases		4.1%			3.9%

The following table outlines maturities of our lease liabilities as of March 31, 2025:

(In millions)
Year Ending June 30,	Operating Leases			Finance Leases
2025 (excluding the nine months ended March 31, 2025)	$	1,709		$	1,065
2026		5,700			4,465
2027		4,823			4,507
2028		3,286			4,509
2029		2,287			3,866
Thereafter		7,728			32,307
Total lease payments		25,533			50,719
Less imputed interest		(2,609	)		(11,505	)
Total	$	22,924		$	39,214

As of March 31, 2025, we had additional operating and finance leases, primarily for datacenters, that had not yet commenced of $4.4 billion and $94.8 billion, respectively. These operating and finance leases will commence between fiscal year 2025 and fiscal year 2030 with lease terms of 1 year to 20 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, and the next hearing is scheduled for May 2025.

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 March 31, 2025, we accrued aggregate legal liabilities of $530 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 March 31, 2025, $549 million 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
Third Quarter		8			3,500		7			2,800
Total		23		$	9,800		25		$	9,160

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 $1.3 billion and $4.1 billion for the three and nine months ended March 31, 2025, respectively, and $1.4 billion and $3.9 billion for the three and nine months ended March 31, 2024, 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		6,169
March 11, 2025	May 15, 2025	June 12, 2025		0.83		6,170
Total			$	2.49	$	18,509
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
March 12, 2024	May 16, 2024	June 13, 2024		0.75		5,574
Total			$	2.25	$	16,721

The dividend declared on March 11, 2025 was included in other current liabilities as of March 31, 2025.

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 March 31,							Nine Months Ended March 31,
		2025			2024			2025			2024
Derivatives
Balance, beginning of period	$	21		$	(9	)	$	(3	)	$	(27	)
Unrealized gains (losses), net of tax of $5, $(5), $(1), and $1		20			(19	)		(1	)		3
Reclassification adjustments for (gains) losses included in other income (expense), net		(50	)		37			7			32
Tax expense (benefit) included in provision for income taxes		10			(8	)		(2	)		(7	)
Amounts reclassified from accumulated other comprehensive loss		(40	)		29			5			25
Net change related to derivatives, net of tax of $(5), $3, $1, and $8		(20	)		10			4			28