Microsoft (MSFT) 10-K risk factor changes: FY2025 vs FY2024

[removed: These factors] [added: Any of these changes] could adversely affect our [removed: business, financial condition, and] results of operations.

[removed: These events] [added: The occurrence of regional epidemics or a global pandemic, such as COVID-19,] could adversely affect our business, operations, financial condition, and results of operations.

Issues in the [removed: development] [added: development, deployment,] and use of AI may result in reputational or competitive harm or liability.

Datasets may be overbroad, insufficient, or contain biased [added: or inaccurate] information.

[removed: If] [added: Finally, if] we enable or offer AI solutions that have unintended consequences, unintended usage or customization by our customers and partners, are contrary to our responsible AI policies and practices, or are otherwise controversial because of [removed: their] [added: the] impact on human rights, privacy, employment, or other social, economic, or political issues, our reputation, competitive position, business, financial condition, and results of operations [removed: may] [added: could] be adversely affected.

Inefficiencies or operational failures, including temporary or permanent loss of customer data, outages, insufficient Internet connectivity, insufficient or unavailable power or water supply, or inadequate storage and compute capacity could diminish the quality of our products, services, and user experience, resulting in contractual liability, claims by customers and other third parties, regulatory actions, damage to our reputation, and loss of current and potential users, subscribers, and advertisers, each of which [removed: may] [added: could] adversely affect our business, operations, financial condition, and results of operations.

We may experience [removed: quality or] supply [added: or quality] problems. There are limited suppliers for certain device and datacenter components.

Datacenter servers, Xbox consoles, Surface devices, and other hardware are assembled in Asia and other geographies that may be subject to disruptions in the supply chain, resulting in shortages which [removed: may] [added: could] adversely affect our business, operations, financial condition, and results of operations.

Our software products and services also [added: have and] may [added: in the future] experience quality or reliability problems.

[removed: The highly sophisticated] [added: Like all software, our] software [removed: we develop may contain] [added: contains] bugs and other defects that interfere with their intended operation.

[removed: Any] [added: Weaknesses in our processes could result in] defects we do not detect and fix in pre-release [removed: testing] [added: testing, which] could cause reduced sales, damage to our reputation, repair or remediation costs, delays in the release of new products or versions, or legal liability, [removed: which] [added: and] could adversely affect our business, financial condition, and results of operations.

[removed: Government enforcement under competition] [added: Competition] laws and new market [removed: regulation may limit how we design and market our products.] [added: regulation:] Government agencies closely scrutinize us under U.S. and foreign competition laws.

[removed: Laws and regulations relating to anti-corruption and trade could result in increased costs, fines, criminal penalties, or reputational damage.] [added: Anti-corruption:] The Foreign Corrupt Practices Act (“FCPA”) and other anti-corruption laws and regulations (“Anti-Corruption Laws”) prohibit corrupt payments by our employees, vendors, or agents, and the accounting provisions of the FCPA require us to maintain accurate books and records and adequate internal controls.

From time to time, we receive inquiries from authorities in the U.S. and elsewhere which may be based on reports from employees and others about our business activities [removed: outside the U.S.] and our compliance with Anti-Corruption Laws.

Periodically, we receive such reports directly and investigate [removed: them,] [added: them] and also cooperate with investigations by U.S. and foreign law enforcement authorities.

[added: Trade:] Increasing trade laws, policies, sanctions, and other regulatory requirements also affect our operations in and outside the U.S. relating to trade and investment.

Periods of intense diplomatic or armed [removed: conflict, such as] [added: conflict like] the ongoing conflict in [removed: Ukraine, may] [added: Ukraine and the Israel-Hamas conflict could] result in (1) new and rapidly evolving sanctions and trade restrictions, which may impair trade with sanctioned individuals and countries, and (2) negative impacts to regional trade ecosystems among our customers, partners, and us.

[removed: Laws and regulations relating to the handling of personal data may impede the adoption of our services or result in increased costs, legal claims, fines against us, or reputational damage.] The growth of our Internet- and cloud-based services internationally relies [removed: increasingly] on the movement of data across national boundaries.

[added: Handling of personal data:] Legal requirements relating to the collection, storage, handling, and transfer of personal data [added: globally] continue to evolve.

[removed: EU data protection authorities have and may again block the use of certain U.S.-based services that involve the transfer of data to the U.S. In the EU] [added: New] and [removed: other markets, potential new] [added: evolving] rules and restrictions on the flow of data across borders could increase the cost and complexity of delivering our products and services.

In addition, the EU General Data Protection Regulation [removed: (“GDPR”), which applies to all of our activities conducted from an establishment in the EU or related to products] [added: (“GDPR”)] and [removed: services offered in the EU, imposes] [added: other similar regulations impose] a range of compliance obligations regarding the handling of personal data.

[removed: More recently, the EU has been developing new] [added: New] requirements related to the use of data, including [removed: in] the [removed: Digital Markets Act, the Digital Services Act, and the] Data Act, [removed: that] add additional rules and [removed: restriction] [added: restrictions] on the use of data in our products and services.

[removed: Existing] [added: We are subject to a variety of new, existing,] and [removed: increasing] [added: evolving] legal and regulatory requirements [added: that] could adversely affect our results of operations. We are subject to a wide range of laws, regulations, and legal requirements in the U.S. and globally, including those that may apply to our products and online services offerings, and those that impose requirements related to user privacy, telecommunications, data storage and protection, digital accessibility, advertising, and online [removed: content.][added: safety.]

Laws in several jurisdictions, including EU Member State laws under the European Electronic Communications Code, increasingly define certain of our services as regulated [removed: telecommunications] services.

This trend may continue [removed: and will result in these] [added: with our] offerings [removed: being] [added: becoming] subject to additional data protection, security, [added: digital safety,] law enforcement surveillance, and other obligations.

[added: Cybersecurity:] Legislative [removed: or] [added: and] regulatory [removed: action relating] [added: actions related] to cybersecurity [removed: requirements] may increase the costs [removed: to develop, implement,] [added: associated with developing, implementing,] or [removed: secure] [added: securing] our products and services.

[added: AI:] Legislative and regulatory action is emerging in [removed: the areas of AI and content moderation,] [added: AI,] which could increase costs or restrict opportunity.

How these laws and regulations apply to our business is often unclear, subject to [removed: change over time,] [added: change,] and sometimes may be inconsistent from jurisdiction to jurisdiction.

Compliance with existing, expanding, or new laws and regulations may involve significant costs [added: and operational efforts,] or require changes in products or business practices that could adversely affect our results of operations.

Noncompliance could result in the imposition of penalties, criminal sanctions, or orders [removed: we] [added: to] cease the alleged noncompliant activity.

[removed: A material] [added: An] adverse impact to our financial condition and results of operations could occur for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable.

Government contracts [removed: generally] [added: and regulatory requirements] can present risks and challenges not present in private commercial agreements.

[removed: For instance,] [added: If] we [removed: may be subject to government audits and investigations relating to these contracts,] [added: do not satisfy contractual or regulatory requirements,] we could be suspended or debarred as a governmental contractor, we could incur civil and criminal fines and penalties, and under certain circumstances contracts may be rescinded.

We are currently under [removed: Internal Revenue Service (“IRS”)] [added: IRS] audit for prior tax years and have received Notices of Proposed Adjustment (“NOPAs”) from the IRS for the tax years 2004 to 2013.

In addition, changes in U.S. federal and state or international tax laws applicable to corporate multinationals, other global fundamental law changes currently being considered by many countries, including in the U.S., and changes in taxing jurisdictions’ administrative interpretations, decisions, policies, and positions [removed: may materially] [added: could] adversely affect our financial condition and results of operations.

[removed: We are subject to evolving sustainability regulatory requirements and expectations, which exposes us to increased costs and legal] [added: Environmental, Social,] and [removed: reputational risks.] [added: Governance:] Laws, regulations, and policies relating to environmental, social, and governance matters are being developed and formalized in Europe, the U.S., and elsewhere, which may include [added: greenhouse gas emissions and energy usage caps, as well as] specific, target-driven [added: environmental, social, and governance] frameworks and disclosure requirements.

In addition, [added: in 2020] we [removed: have established and publicly] announced goals [removed: and commitments] to become carbon negative, water positive, [removed: zero waste,] and [removed: protect more land than we use.][added: zero waste by 2030.]

Any failure or perceived failure to [removed: pursue or fulfill] [added: meet] our sustainability [removed: goals and commitments] [added: goals,] or to [removed: satisfy] [added: meet] various sustainability [removed: reporting standards or] regulatory [removed: requirements within the timelines we announce, or at all,] [added: requirements,] could result in claims and lawsuits, regulatory actions, [added: penalties,] or damage to our reputation, each of which [removed: may] [added: could] adversely affect our business, operations, financial condition, and results of operations.

If we are unable to protect our intellectual property, our results of operations [removed: may] [added: could] be adversely affected.

Unauthorized access to or disclosure of source code or other intellectual property also [removed: could increase] [added: increases] the security risks described elsewhere in these risk factors.

Human review of certain inputs and outputs may be required, including for agentic AI systems that can take actions autonomously.

These risks may stem from issues related to intellectual property, data privacy, and other claims associated with AI training and outputs.

They are further compounded by the evolving regulatory landscape, with new laws emerging globally, including the European Union (“EU”).

There is also rising divergence globally in how to address these issues and impacts, with the result that we will need to navigate a web of different tensions across geographies.

The processes we use to develop our software are imperfect.

New, existing, and evolving laws and regulations, or interpretations or applications of existing laws and regulations in a manner inconsistent with our interpretations of such laws and regulations or our practices, may result in modification of our products and services, altered business models and operations, increased costs, reputational damage, and civil or criminal liability.

Examples include laws and regulations regarding:

AI regulatory areas include model and system development and deployment, frontier model safety, transparency, and content provenance.

Restrictions on data flows and outbound investment and customer sensitivities may limit our ability to leverage parts of our global engineering footprint to provide services in certain jurisdictions.

Increased geopolitical instabilities and changing U.S. Administration priorities create an unpredictable trade landscape.

U.S. tariff and shifting AI export controls policies, like the AI Diffusion Rule, could increase operational costs, create uncertainty in the continuity of our products, and accelerate sovereignty initiatives among international partners and customers.

The volatility of U.S. tariffs has triggered economic uncertainty and could impact cloud and devices supply chain cost competitiveness.

The potential replacement of the recently rescinded AI Diffusion Rule and other potential AI-related rulemakings could adversely affect Microsoft’s business, strategy, and operations.

The legal and regulatory environment in this area is complex and continues to evolve across multiple jurisdictions.

As a result, there is considerable uncertainty regarding both current and future compliance obligations.

This uncertainty increases the risk that we may incur additional operational costs, face regulatory enforcement actions, or encounter challenges in the development and deployment of our products.

Data protection authorities and governments in the EU and other markets have and may again restrict and/or block the use of services that involve the transfer of data across borders.

For instance, we are subject to government audits and investigations relating to these contracts, and we are required to provide assurance and attestations about our products and processes.

Changes in geopolitical conditions also increase the security risks described elsewhere in these risk factors.

Our AI systems offer users powerful tools and capabilities.

However, there may be instances where these systems are used in ways that are unintended or inappropriate.

In addition, some users may also engage in fraudulent or abusive activities through our cloud-based services, such as unauthorized account access, payment fraud, or terms of service violations including cryptocurrency mining or launching cyberattacks.

While are committed to detecting and controlling such misuse of our cloud-based and AI services, our efforts may not be effective, and we may incur reputational damage or experience adverse impacts to our business and results of operations.

RISKS RELATING TO THE EVOLUTION OF OUR BUSINESS

We make significant investments in products and services that may not achieve expected returns. We will continue to make significant investments in research, development, and marketing for existing products, services, and technologies.

In addition, we are focused on developing new AI platform services and incorporating AI into existing products and services.

We also invest in the development and acquisition of a variety of hardware for productivity, communication, and entertainment, including PCs, tablets, and gaming devices.

Investments in new technology are speculative.

Commercial success depends on many factors, including innovation, developer support, and effective distribution and marketing.

If customers do not perceive our latest offerings as providing significant new functionality or other value, they may reduce their purchases of new software and hardware products or upgrades, unfavorably affecting revenue.

We may not achieve significant revenue from new product, service, and distribution channel investments for several years, if at all.

New products and services may not be profitable or may not achieve operating margins as high as we have experienced historically.

We may not get engagement in certain features that drive post-sale monetization opportunities.

Our data-handling practices across our products and services will continue to be under scrutiny.

Perceptions of mismanagement, driven by regulatory activity or negative public reaction to our practices or product experiences, could negatively impact product and feature adoption.

Developing new technologies is complex.

It can require long development and testing periods.

We could experience significant delays in new releases or significant problems in creating new products or services.

Acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business. We expect to continue making acquisitions and entering into joint ventures and strategic alliances as part of our long-term business strategy.

For example, in March 2022 we completed our acquisition of Nuance Communications, Inc., and in October 2023 we completed our acquisition of Activision Blizzard, Inc. (“Activision Blizzard”).

In January 2023 we announced the third phase of our OpenAI strategic partnership.

Acquisitions and other transactions and arrangements involve significant challenges and risks, including that they do not advance our business strategy, that we get an unsatisfactory return on our investment, that they raise new compliance-related obligations and challenges, that we have difficulty integrating and retaining new employees, business systems, and technology, that they distract management from our other businesses, or that announced transactions may not be completed.

If an arrangement fails to adequately anticipate changing circumstances and interests of a party, it may result in early termination or renegotiation of the arrangement.

We also have limited ability to control or influence third parties with whom we have arrangements, which may impact our ability to realize the anticipated benefits.

The success of these transactions and arrangements depend in part on our ability to leverage them to enhance our existing products and services or develop compelling new ones, as well as the acquired companies’ ability to meet our policies and processes in areas such as data governance, privacy, and cybersecurity.

It may take longer than expected to realize the full benefits from these transactions and arrangements, such as increased revenue or enhanced efficiencies, or the benefits may ultimately be smaller than we expected.

In addition, an acquisition may be subject to challenge even after it has been completed.

For example, the Federal Trade Commission continues to challenge our Activision Blizzard acquisition and could, if successful, alter or unwind the transaction.

If our goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings. We acquire other companies and intangible assets and may not realize all the economic benefit from those acquisitions, which could cause an impairment of goodwill or intangibles.

We review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

We test goodwill for impairment at least annually.

Factors that may be a change in circumstances, indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable, include a decline in our stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in industry segments in which we participate.

We have in the past recorded, and may in the future be required to record, a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, negatively affecting our results of operations.

PART I

Item 1A

CYBERSECURITY, DATA PRIVACY, AND PLATFORM ABUSE RISKS

Cyberattacks and security vulnerabilities could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position.

Security of our information technology

Threats to IT security can take a variety of forms.

Costs incurred internally in researching and developing a [removed: computer] software product [added: to be marketed or sold to external users] are charged to expense until technological feasibility has been established for the product.

The following table reconciles our financial results reported in accordance with GAAP to non-GAAP financial results:

| | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| (In millions, except percentages and per share amounts) | | 2024 | | | | 2023 | | | | Percentage Change | | |

| Gross margin | | $ | 171,008 | | | $ | 146,052 | | | | 17% | |

| Severance, hardware-related impairment, and lease consolidation costs | | | 0 | | | | 152 | | | | * | |

| Adjusted gross margin (non-GAAP) | | $ | 171,008 | | | $ | 146,204 | | | | 17% | |

| Operating income | | $ | 109,433 | | | $ | 88,523 | | | | 24% | |

| Severance, hardware-related impairment, and lease consolidation costs | | | 0 | | | | 1,171 | | | | * | |

| Adjusted operating income (non-GAAP) | | $ | 109,433 | | | $ | 89,694 | | | | 22% | |

| Net income | | $ | 88,136 | | | $ | 72,361 | | | | 22% | |

| Severance, hardware-related impairment, and lease consolidation costs | | | 0 | | | | 946 | | | | * | |

| Adjusted net income (non-GAAP) | | $ | 88,136 | | | $ | 73,307 | | | | 20% | |

| Diluted earnings per share | | $ | 11.80 | | | $ | 9.68 | | | | 22% | |

| Severance, hardware-related impairment, and lease consolidation costs | | | 0 | | | | 0.13 | | | | * | |

| Adjusted diluted earnings per share (non-GAAP) | | $ | 11.80 | | | $ | 9.81 | | | | 20% | |

* *Not meaningful.*

LIQUIDITY AND CAPITAL RESOURCES

We expect existing cash, cash equivalents, short-term investments, cash flows from operations, and access to capital markets to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as dividends, share repurchases, debt maturities, material capital expenditures, and the transition tax related to the Tax Cuts and Jobs Act (“TCJA”), for at least the next 12 months and thereafter for the foreseeable future.

Cash, Cash Equivalents, and Investments

Cash, cash equivalents, and short-term investments totaled $75.5 billion and $111.3 billion as of June 30, 2024 and 2023, respectively.

Equity and other investments were $14.6 billion and $9.9 billion as of June 30, 2024 and 2023, respectively.

Our short-term investments are primarily intended to facilitate liquidity and capital preservation.

They consist predominantly of highly liquid investment-grade fixed-income securities, diversified among industries and individual issuers.

The investments are predominantly U.S. dollar-denominated securities, but also include foreign currency-denominated securities to diversify risk.

Our fixed-income investments are exposed to interest rate risk and credit risk.

The credit risk and average maturity of our fixed-income portfolio are managed to achieve economic returns that correlate to certain fixed-income indices.

The settlement risk related to these investments is insignificant given that the short-term investments held are primarily highly liquid investment-grade fixed-income securities.

Valuation

In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine the fair value of our financial instruments.

This pricing methodology applies to our Level 1 investments, such as U.S. government securities, common and preferred stock, and mutual funds.

If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly.

This pricing methodology applies to our Level 2 investments, such as commercial paper, certificates of deposit, U.S. agency securities, foreign government bonds, mortgage- and asset-backed securities, corporate notes and bonds, and municipal securities.

Level 3 investments are valued using internally-developed models with unobservable inputs.

Assets and liabilities measured at fair value on a recurring basis using unobservable inputs are an immaterial portion of our portfolio.

PART II

Item 7

A majority of our investments are priced by pricing vendors and are generally Level 1 or Level 2 investments as these vendors either provide a quoted market price in an active market or use observable inputs for their pricing without applying significant adjustments.

Broker pricing is used mainly when a quoted price is not available, the investment is not priced by our pricing vendors, or when a broker price is more reflective of fair values in the market in which the investment trades.

Our broker-priced investments are generally classified as Level 2 investments because the broker prices these investments based on similar assets without applying significant adjustments.

| Risk Categories | | Hypothetical Change | | June 30, [removed: 2024] [added: 2025] | | | | | Impact | |

| Foreign currency – Revenue | | 10% decrease in foreign exchange rates | | $ | [removed: (9,605] [added: (11,596] | ) | | | Earnings | |

| Foreign currency – Investments | | 10% decrease in foreign exchange rates | | | [removed: (38] [added: (17] | ) | | | Fair Value | |

| Interest rate | | 100 basis point increase in U.S. treasury interest rates | | | [removed: (1,343] [added: (1,415] | ) | | | Fair Value | |

| Credit | | 100 basis point increase in credit spreads | | | [removed: (318] [added: (436] | ) | | | Fair Value | |

| Equity | | 10% decrease in equity market prices | | | [removed: (1,078] [added: (1,213] | ) | | | Earnings | |

| Year Ended June 30, | | [added: |] 2024 | | | | 2023 | | [removed: | | 2022 | | |]

| Product | | $ | [removed: 64,773] [added: 63,946] | | | $ | [removed: 64,699] [added: 64,773] | | | $ | [removed: 72,732] [added: 64,699] | |

| Service and other | | | [removed: 180,349] [added: 217,778] | | | | [removed: 147,216] [added: 180,349] | | | | [removed: 125,538] [added: 147,216] | |

| Total revenue | | | [removed: 245,122] [added: 281,724] | | | | [removed: 211,915] [added: 245,122] | | | | [removed: 198,270] [added: 211,915] | |

| Product | | | [removed: 15,272] [added: 13,501] | | | | [removed: 17,804] [added: 15,272] | | | | [removed: 19,064] [added: 17,804] | |

| Service and other | | | [removed: 58,842] [added: 74,330] | | | | [removed: 48,059] [added: 58,842] | | | | [removed: 43,586] [added: 48,059] | |

| Total cost of revenue | | | [removed: 74,114] [added: 87,831] | | | | [removed: 65,863] [added: 74,114] | | | | [removed: 62,650] [added: 65,863] | |

| Gross margin | | | [removed: 171,008] [added: 193,893] | | | | [removed: 146,052] [added: 171,008] | | | | [removed: 135,620] [added: 146,052] | |

| Research and development | | | [removed: 29,510] [added: 32,488] | | | | [removed: 27,195] [added: 29,510] | | | | [removed: 24,512] [added: 27,195] | |

| Sales and marketing | | | [removed: 24,456] [added: 25,654] | | | | [removed: 22,759] [added: 24,456] | | | | [removed: 21,825] [added: 22,759] | |

| General and administrative | | | [removed: 7,609] [added: 7,223] | | | | [removed: 7,575] [added: 7,609] | | | | [removed: 5,900] [added: 7,575] | |

| Operating income | | | [removed: 109,433] [added: 128,528] | | | | [removed: 88,523] [added: 109,433] | | | | [removed: 83,383] [added: 88,523] | |

| Other income (expense), net | | | [removed: (1,646] [added: (4,901] | ) | | | [removed: 788] [added: (1,646] | [added: )] | | | [removed: 333] [added: 788] | |

| Income before income taxes | | | [removed: 107,787] [added: 123,627] | | | | [removed: 89,311] [added: 107,787] | | | | [removed: 83,716] [added: 89,311] | |

| Provision for income taxes | | | [removed: 19,651] [added: 21,795] | | | | [removed: 16,950] [added: 19,651] | | | | [removed: 10,978] [added: 16,950] | |

| Net income | | $ | [removed: 88,136] [added: 101,832] | | | $ | [removed: 72,361] [added: 88,136] | | | $ | [removed: 72,738] [added: 72,361] | |

| Basic | | $ | [removed: 11.86] [added: 13.70] | | | $ | [removed: 9.72] [added: 11.86] | | | $ | [removed: 9.70] [added: 9.72] | |

| Diluted | | $ | [removed: 11.80] [added: 13.64] | | | $ | [removed: 9.68] [added: 11.80] | | | $ | [removed: 9.65] [added: 9.68] | |

| Basic | | | [removed: 7,431] [added: 7,433] | | | | [removed: 7,446] [added: 7,431] | | | | [removed: 7,496] [added: 7,446] | |

| Diluted | | | [removed: 7,469] [added: 7,465] | | | | [removed: 7,472] [added: 7,469] | | | | [removed: 7,540] [added: 7,472] | |

| Net change related to derivatives | | | [removed: 24] [added: (5] | [added: )] | | | [removed: (14] [added: 24] | [removed: )] | | | [removed: 6] [added: (14] | [added: )] |

| Net change related to investments | | | [removed: 957] [added: 1,574] | | | | [removed: (1,444] [added: 957] | [removed: )] | | | [removed: (5,360] [added: (1,444] | ) |

| Translation adjustments and other | | | [removed: (228] [added: 674] | [removed: )] | | | [removed: (207] [added: (228] | ) | | | [removed: (1,146] [added: (207] | ) |

| Other comprehensive income (loss) | | | [removed: 753] [added: 2,243] | | | | [removed: (1,665] [added: 753] | [removed: )] | | | [removed: (6,500] [added: (1,665] | ) |

| Comprehensive income | | $ | [removed: 88,889] [added: 104,075] | | | $ | [removed: 70,696] [added: 88,889] | | | $ | [removed: 66,238] [added: 70,696] | |

| June [removed: 30,] [added: 30, 2024] | | [removed: 2024] | | | | [removed: 2023] | | | [added: | | | | | | | |]

| Cash and cash equivalents | | $ | [removed: 18,315] [added: 30,242] | | | $ | [removed: 34,704] [added: 18,315] | |

| Short-term investments | | | [removed: 57,228] [added: 64,323] | | | | [removed: 76,558] [added: 57,228] | |

| Total cash, cash equivalents, and short-term investments | | | [removed: 75,543] [added: 94,565] | | | | [removed: 111,262] [added: 75,543] | |

| Accounts receivable, net of allowance for doubtful accounts of [removed: $830] [added: $944] and [removed: $650] [added: $830] | | | [removed: 56,924] [added: 69,905] | | | | [removed: 48,688] [added: 56,924] | |

| Inventories | | | [removed: 1,246] [added: 938] | | | | [removed: 2,500] [added: 1,246] | |

| Other current assets | | | [removed: 26,021] [added: 25,723] | | | | [removed: 21,807] [added: 26,021] | |

| Total current assets | | | [removed: 159,734] [added: 191,131] | | | | [removed: 184,257] [added: 159,734] | |

| Property and equipment, net of accumulated depreciation of [removed: $76,421] [added: $93,653] and [removed: $68,251] [added: $76,421] | | | [removed: 135,591] [added: 204,966] | | | | [removed: 95,641] [added: 135,591] | |

| Year Ended June 30, | | 2025 | | | | 2024 | | | | 2023 | | |

| Net income | | $ | 101,832 | | | $ | 88,136 | | | $ | 72,361 | |

| Year Ended June 30, | | 2025 | | | | 2024 | | | | 2023 | | |

| Common stock issued | | | 2,056 | | | | 2,002 | | | | 1,866 | |

| Stock-based compensation expense | | | 11,974 | | | | 10,734 | | | | 9,611 | |

| Net income | | | 101,832 | | | | 88,136 | | | | 72,361 | |

| Other comprehensive income (loss) | | | 2,243 | | | | 753 | | | | (1,665 | ) |

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 primarily impacted Note 8 – Goodwill, Note 12 – Unearned Revenue, and Note 18 – Segment Information and Geographic Data.

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.

Recently Adopted Accounting Guidance

We adopted the standard beginning with our annual reporting for fiscal year 2025.

The adoption resulted in incremental segment reporting disclosures, most notably disclosure of cost of revenue and operating expenses for each reportable segment.

Refer to Note 18 – Segment Information and Geographic Data.

Recent Accounting Guidance Not Yet Adopted

*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.

| Year Ended June 30, | | 2025 | | | | 2024 | | | | 2023 | | |

| Year Ended June 30, | | 2025 | | | | 2024 | | | | 2023 | | |

| Year Ended June 30, | | 2025 | | | | 2024 | | | | 2023 | | |

| Year Ended June 30, | | 2025 | | | | 2024 | | | | 2023 | | |

| June 30, 2025 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Commercial paper | | | Level 2 | | | $ | 10,880 | | | $ | 0 | | | $ | 0 | | | $ | 10,880 | | | $ | 9,939 | | | $ | 941 | | | $ | 0 | |

| Certificates of deposit | | | Level 2 | | | | 2,653 | | | | 0 | | | | 0 | | | | 2,653 | | | | 2,309 | | | | 344 | | | | 0 | |

| U.S. government securities | | | Level 1 | | | | 52,878 | | | | 71 | | | | (1,462 | ) | | | 51,487 | | | | 4,742 | | | | 46,745 | | | | 0 | |

| Total debt investments | | | | | | $ | 85,589 | | | $ | 295 | | | $ | (1,625 | ) | | $ | 84,259 | | | $ | 17,486 | | | $ | 64,313 | | | $ | 2,460 | |

| Equity investments | | | Level 1 | | | | | | | | | | | | | | | $ | 4,577 | | | $ | 1,045 | | | $ | 0 | | | $ | 3,532 | |

| Total equity investments | | | | | | | | | | | | | | | | | | $ | 13,718 | | | $ | 1,045 | | | $ | 0 | | | $ | 12,673 | |

| Cash | | | | | | | | | | | | | | | | | | $ | 11,711 | | | $ | 11,711 | | | $ | 0 | | | $ | 0 | |

| Total | | | | | | | | | | | | | | | | | | $ | 109,970 | | | $ | 30,242 | | | $ | 64,323 | | | $ | 15,405 | |

Equity investments measured using the equity method were $6.0 billion as of both June 30, 2025 and 2024.

| June 30, 2025 | | | | | | | | | | | | | | | | | | | | | | | | |

| U.S. government and agency securities | | $ | 2,569 | | | $ | (51 | ) | | $ | 34,608 | | | $ | (1,411 | ) | | $ | 37,177 | | | $ | (1,462 | ) |

| Corporate notes and bonds | | | 1,107 | | | | (8 | ) | | | 3,105 | | | | (98 | ) | | | 4,212 | | | | (106 | ) |

In July 2022, we completed an assessment of the useful lives of our server and network equipment.

Due to investments in software that increased efficiencies in how we operate our server and network equipment, as well as advances in technology, we determined we should increase the estimated useful lives of both server and network equipment from four years to six years.

This change in accounting estimate was effective beginning fiscal year 2023.

Activity in the allowance for doubtful accounts was as follows:

| Charged to costs and other | | | 386 | | | | 258 | | | | 157 | |

| Write-offs | | | (218 | ) | | | (252 | ) | | | (245 | ) |

Allowance for doubtful accounts included in our consolidated balance sheets:

| Accounts receivable, net of allowance for doubtful accounts | | $ | 830 | | | $ | 650 | | | $ | 633 | |

| Total | | $ | 884 | | | $ | 716 | | | $ | 710 | |

We record an allowance to cover expected losses based on troubled accounts, historical experience, and other currently available evidence.

Capitalized software development costs are amortized over the estimated lives of the products.

Product Warranty

We provide for the estimated costs of fulfilling our obligations under hardware and software warranties at the time the related revenue is recognized.

For hardware warranties, we estimate the costs based on historical and projected product failure rates, historical and projected repair costs, and knowledge of specific product failures (if any).

The specific hardware warranty terms and conditions vary depending upon the product sold and the country in which we do business, but generally include parts and labor over a period generally ranging from 90 days to three years.

For software warranties, we estimate the costs to provide bug fixes, such as security patches, over the estimated life of the software.

We regularly reevaluate our estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary.

Inventories

Inventories are stated at average cost, subject to the lower of cost or net realizable value.

Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories.

Net realizable value is the estimated selling price less estimated costs of completion, disposal, and transportation.

We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory.

If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to cost of revenue.

| June 30, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Commercial paper | | | Level 2 | | | $ | 16,589 | | | $ | 0 | | | $ | 0 | | | $ | 16,589 | | | $ | 12,231 | | | $ | 4,358 | | | $ | 0 | |

| Certificates of deposit | | | Level 2 | | | | 2,701 | | | | 0 | | | | 0 | | | | 2,701 | | | | 2,657 | | | | 44 | | | | 0 | |

| U.S. government securities | | | Level 1 | | | | 65,237 | | | | 2 | | | | (3,870 | ) | | | 61,369 | | | | 2,991 | | | | 58,378 | | | | 0 | |

| Total debt investments | | | | | | $ | 99,869 | | | $ | 13 | | | $ | (4,550 | ) | | $ | 95,332 | | | $ | 18,780 | | | $ | 76,552 | | | $ | 0 | |

| Equity investments | | | Level 1 | | | | | | | | | | | | | | | $ | 10,138 | | | $ | 7,446 | | | $ | 0 | | | $ | 2,692 | |

| Total equity investments | | | | | | | | | | | | | | | | | | $ | 17,325 | | | $ | 7,446 | | | $ | 0 | | | $ | 9,879 | |

| Cash | | | | | | | | | | | | | | | | | | $ | 8,478 | | | $ | 8,478 | | | $ | 0 | | | $ | 0 | |

| Total | | | | | | | | | | | | | | | | | | $ | 121,141 | | | $ | 34,704 | | | $ | 76,558 | | | $ | 9,879 | |

| June 30, 2023 | | | | | | | | | | | | | | | | | | | | | | | | |

| U.S. government and agency securities | | $ | 7,950 | | | $ | (336 | ) | | $ | 45,273 | | | $ | (3,534 | ) | | $ | 53,223 | | | $ | (3,870 | ) |

| Corporate notes and bonds | | | 2,326 | | | | (49 | ) | | | 7,336 | | | | (534 | ) | | | 9,662 | | | | (583 | ) |

| Municipal securities | | | 111 | | | | (3 | ) | | | 186 | | | | (31 | ) | | | 297 | | | | (34 | ) |

| Total | | $ | 10,721 | | | $ | (398 | ) | | $ | 53,598 | | | $ | (4,152 | ) | | $ | 64,319 | | | $ | (4,550 | ) |

| Total | | $ | 68,209 | | | $ | 64,899 | |

Foreign currency risks related to certain non-U.S. dollar-denominated investments are hedged using foreign exchange forward contracts that are designated as fair value hedging instruments.

Item [removed: 1][added: 1A]

As of June 30, [removed: 2024,] [added: 2025,] we employed approximately 228,000 people on a full-time basis, [removed: 126,000] [added: 125,000] in the U.S. and [removed: 102,000] [added: 103,000] internationally.

Of the total [removed: employed people, 86,000] [added: employees, 89,000] were in operations, including product support and consulting services, datacenter operations, and manufacturing and distribution; [removed: 81,000] [added: 80,000] were in product research and development; [removed: 45,000] [added: 44,000] were in sales and marketing; and [removed: 16,000] [added: 15,000] were in general and administration.

We design our programs to attract, reward, and retain top [removed: talent, enable our employees’ continual growth,] [added: talent while fostering continuous employee development] and [removed: reinforce] [added: reinforcing] our [added: organizational] culture and values.

[removed: Our] [added: Through our] employee listening [removed: systems enable us to] [added: systems, we] gather [added: direct] feedback [removed: directly] from our [removed: workforce] [added: workforce, enabling us] to [removed: inform] [added: adapt] our programs and [added: address] employee needs [removed: globally, giving us] [added: globally with] real-time [removed: insights into ways we can support our employees.][added: insights.]

We continue to invest in [removed: new] gaming studios and content to expand our intellectual property roadmap and leverage new content creators.

These unique gaming experiences are the cornerstone of Xbox Game Pass, a subscription service and gaming community with access to a curated library of [removed: over 400] first- and third-party [removed: console and PC] titles.

In addition to first-party tools, we have several partnerships with [removed: companies, such as Yahoo,] [added: companies] through which we provide and monetize search offerings.

Windows faces competition from various software products and from alternative platforms and [removed: devices, mainly from Apple and Google, and Microsoft Defender for Endpoint competes with CrowdStrike on endpoint security solutions.][added: devices.]

[removed: These manufacturers, many] [added: Many] of [removed: which] [added: these manufacturers] are also current or potential partners and customers, [removed: include Apple and] [added: including] our Windows OEMs.

Xbox and our cloud gaming services face competition from various online gaming ecosystems and game streaming [removed: services, including those operated by Amazon, Apple, Meta, and Tencent.][added: services.]

Our Search and news advertising business competes with [removed: Google, OpenAI,] [added: search engines,] and a wide array of websites, social [removed: platforms like Meta,] [added: platforms,] and portals that provide content and online offerings to end users.

We have regional operations service centers [added: in the Americas, Asia Pacific, Europe, and the Middle East] that support our [added: business] operations, including customer contract and order processing, billing, credit and collections, customer lifecycle [added: AI and cloud] operations, [removed: information processing,] and vendor management and logistics.

We continue to [removed: identify and evaluate opportunities to expand] [added: align] our datacenter locations and [removed: increase our] server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services.

[removed: However, some of our products contain certain components for which there] [added: There] are [removed: very] few qualified [removed: suppliers.][added: suppliers for certain components of our servers and devices.]

Extended [added: or unforeseen] disruptions at these suppliers could impact our ability to [added: operate our datacenters and] manufacture devices on time to meet consumer demand.

Product and Service [removed: Development, and Intellectual Property][added: Development]

[removed: Internal development] [added: We develop most of our products and services internally which] allows us to maintain competitive advantages that come from product differentiation and closer technical control over our products and services.

We work actively in the U.S. and internationally to ensure the enforcement of copyright, [added: patent,] trademark, trade secret, and other protections that apply to our software and hardware products, services, business plans, and branding.

We believe our continuing research and product development are not materially dependent on any single license or other agreement with a [removed: third party] [added: third-party] relating to the development of our products.

Our success is based on our ability to create new and compelling products, services, and experiences for our users, [removed: to] initiate and embrace disruptive technology trends, [removed: to] enter new geographic and product markets, and [removed: to] drive broad adoption of our products and services.

[removed: Based on our assessment of key technology trends, we maintain our long-term commitment to] [added: We make significant investments in] research and development [removed: across a wide spectrum of] [added: for new and existing products, services, and] technologies, [removed: tools,] [added: including tools] and platforms spanning digital work and life experiences, cloud computing, AI, devices, [added: security,] and operating systems.

We plan to continue to make significant investments in a broad range of product research and development activities, and as [removed: appropriate] [added: appropriate,] we will coordinate our research and development across operating segments and leverage the results across the company.

We market and distribute our products and services through the following channels: [removed: OEMs,] direct, [removed: and] distributors and [removed: resellers.][added: resellers, and OEMs.]

Our sales organization performs a variety of functions, including working directly with commercial enterprises and public-sector organizations worldwide to identify and meet their technology and digital transformation requirements; [removed: managing OEM relationships; and] supporting system integrators, independent software vendors, and other partners who engage directly with our customers to perform sales, consulting, and fulfillment functions for our products and [removed: services.][added: services; and managing OEM relationships.]

We offer options for organizations of varying sizes that want to purchase our cloud services and [removed: on-premise] [added: on-premises] software.

Our customers include individual consumers, small and medium organizations, large global enterprises, public-sector institutions, [removed: Internet] service providers, application developers, and OEMs.

Our business teams, with legal support, manage the compliance programs and prepare external regulatory and commercial reporting, and our internal audit teams conduct reviews of [removed: our] [added: the] programs and processes.

While we [removed: intended to create] [added: have] a unified approach to regulatory compliance, some of the programs and processes [removed: established pursuant to the framework] are tailored to meet specific regulatory obligations, such as with the creation of independent compliance functions required by the European Union (“EU”) Digital Markets Act and the EU Digital Services Act, which oversee, monitor, and assess the company’s compliance with these acts.

Our executive officers as of July 30, [removed: 2024] [added: 2025] were as follows:

| Satya Nadella | | | [removed: 56] [added: 57] | | | Chairman and Chief Executive Officer |

| Judson B. Althoff | | | [removed: 51] [added: 52] | | | Executive Vice President and Chief Commercial Officer |

| [removed: Kathleen T. Hogan] [added: Amy L. Coleman] | | | [removed: 58] [added: 53] | | | Executive Vice President and Chief Human Resources Officer |

| Amy E. Hood | | | [removed: 52] [added: 53] | | | Executive Vice President and Chief Financial Officer |

| Takeshi Numoto | | | [removed: 53] [added: 54] | | | Executive Vice President and Chief Marketing Officer |

| Bradford L. Smith | | | [removed: 65] [added: 66] | | | Vice Chair and President |

Ms. [removed: Hogan] [added: Coleman] was appointed Executive Vice President and Chief Human Resources Officer in [removed: June 2023.][added: March 2025.]

Prior to [removed: that] [added: that,] Ms. Hogan was Corporate Vice President of Microsoft Services.

We publish a variety of reports and resources related to our Corporate Social Responsibility programs and progress on our Reports Hub website, www.microsoft.com/corporate-responsibility/reports-hub, including reports on [added: responsible AI,] sustainability, responsible sourcing, accessibility, digital trust, and public policy engagement.

We face intense competition across all markets for our products and services, which [removed: may] [added: could] adversely affect our results of operations.

Microsoft is expanding how billions of people globally access and play video games on PC, console, mobile, and cloud.

Microsoft Copilot is a digital companion designed to inform, entertain, and inspire.

Our gaming platform competes with other console platforms.

Our total compensation offering is both highly differentiated and competitive within the market, and we also monitor pay equity across multiple dimensions.

We also provide access to continuous learning through a wide range of internal and external content, supporting professional growth across roles and disciplines.

Additionally, our culture prioritizes the security of both our customers and Microsoft, embedding this responsibility across all teams and functions.

We engage third-party manufacturers to produce our devices and have implemented measures to enhance supply chain efficiency and resilience, including the ability to relocate production geographically.

Intellectual Property

These requirements are continually evolving, and they can be unclear and vary significantly across jurisdictions.

We have implemented comprehensive compliance programs across our operations to adapt to these changes and to maintain customer and regulator confidence.

We monitor regulatory developments around the world and implement policies, controls, and technical safeguards so that our operations, products, and services meet applicable legal standards.

| Kathleen T. Hogan | | | 59 | | | Executive Vice President, Office of Strategy and Transformation |

She previously served as Corporate Vice President, Human Resources and Corporation Functions since January 2021.

Prior to that, Ms. Coleman served as Vice President Human Resources and Corporate Functions since September 2020.

Since joining Microsoft in 2009, Ms. Coleman has held various positions of increasing authority.

Ms. Hogan was appointed Executive Vice President, Office of Strategy and Transformation in March 2025.

She previously served as Executive Vice President and Chief Human Resources Officer since June 2023.

Our AI systems offer users powerful tools and capabilities.

However, there may be instances where these systems are used in ways that are unintended or inappropriate.

In addition, some users may also engage in fraudulent or abusive activities through our cloud-based and AI services, such as unauthorized account access, payment fraud, or terms of service violations including cryptocurrency mining or launching cyberattacks.

While we are committed to detecting and controlling such misuse of our cloud-based and AI services, our efforts may not be effective, and we may incur reputational damage or experience adverse impacts to our business and results of operations.

RISKS RELATING TO THE EVOLUTION OF OUR BUSINESS

We make significant investments in products and services that may not achieve expected returns. We will continue to make significant investments in research, development, and marketing for existing products, services, and technologies, including AI-based products and services.

We also invest in the development and acquisition of a variety of hardware for productivity, communication, and entertainment, including PCs, tablets, and gaming devices.

Investments in new technology are speculative.

Commercial success depends on many factors, including innovation, developer support, and effective distribution and marketing.

If customers do not perceive our latest offerings as providing significant new functionality or other value, they may reduce their purchases of new software and hardware products or upgrades, unfavorably affecting revenue.

We may not achieve significant revenue from new product, service, and distribution channel investments for several years, if at all.

New products and services may not be profitable or may not achieve operating margins as high as we have experienced historically.

We may not get engagement in certain features that drive post-sale monetization opportunities.

Our data-handling practices across our products and services will continue to be under scrutiny.

Perceptions of mismanagement, driven by regulatory activity or negative public reaction to our practices or product experiences, could negatively impact product and feature adoption.

Developing new technologies is complex.

It can require long development and testing periods.

We could experience significant delays in new releases or significant problems in creating new products or services.

These factors could adversely affect our business, financial condition, and results of operations.

Acquisitions, joint ventures, and strategic alliances could have an adverse effect on our business. We expect to continue making acquisitions and entering into joint ventures and strategic alliances as part of our long-term business strategy.

For example, in October 2023 we completed our acquisition of Activision Blizzard, Inc. (“Activision Blizzard”).

In January 2023 we announced the third phase of our OpenAI strategic partnership.

Acquisitions and other transactions and arrangements involve significant challenges and risks, including that they do not advance our business strategy, that we get an unsatisfactory return on our investment, that they raise new compliance-related obligations and challenges, that we have difficulty integrating and retaining new employees, business systems, and technology, that they distract management from our other businesses, or that announced transactions may not be completed.

Even amid the challenges, we remain optimistic.

We’re encouraged by ongoing progress across our campuses and datacenters, and throughout our value chain.

Addressing Racial Injustice and Inequity

In June 2020, we outlined a series of multi-year commitments designed to address the racial injustice and inequity experienced by racial and ethnic minorities in the United States, including Black and African American communities.

We remain committed to addressing racial injustice and inequity and helping improve lived experiences at Microsoft, in employees’ communities, and beyond.

In fiscal year 2024, we continued to collaborate with partners and worked within neighborhoods and communities to advance projects and programs.

We grew our Nonprofit Tech Acceleration for Black and African American Communities program, to help more than 3,000 local organizations in nearly 1,900 Black and African American communities use technical solutions to modernize and streamline operations.

We also expanded our Technology Education and Learning Support (“TEALS”) program to reach nearly 550 high schools across 21 racial equity expansion regions with the support of nearly 1,500 volunteers, 12% of whom identify as Black or African American.

We have committed $150 million in Minority Depository Institutions and funds supporting Black and African American-owned small businesses.

These commitments drive sustained impact by directly enabling an increase of funds into local communities, improving diverse, small-business access to capital, and increasing skill development.

We continue to partner with diverse-owned banking partners and asset managers to catalyze growth and industry participation.

Additionally, we enriched our supplier pipeline, achieving our goal to spend $500 million with double the number of Black- and African American-owned suppliers.

We have also provided 162 low- or no-interest loans to our small to medium-sized partners through our Partner Capital Fund.

We also continue to make progress toward our overall commitment to double the number of Black and African American and Hispanic and Latinx leaders in the U.S. by 2025.

Investing in Digital Skills

Microsoft’s Skills for Jobs initiative aims to support a more skills-based labor market, with greater flexibility and accessible learning paths to develop the right skills needed for the most in-demand jobs.

This initiative brings together classes, Career Essentials Certificates, and other resources from LinkedIn, GitHub, and Microsoft Learn, and is built on data insights drawn from LinkedIn’s Economic Graph.

Our goal was to train and certify 10 million learners by 2025.

As of May 2024, we have surpassed that goal, training and certifying 12.6 million learners.

We also launched a campaign in the United States in 2021 to help skill and recruit 250,000 people into the nation’s cybersecurity workforce by 2025, representing half of the country’s workforce shortage.

To that end, we are making curriculum available free of charge to all of the nation’s higher education institutions, providing training for new and existing faculty, and providing scholarships and supplemental resources to 25,000 students.

The cyber skills initiative has expanded to 27 additional countries that show elevated cyberthreat risks coupled with significant gaps in their cybersecurity workforces, where we’ve partnered with nonprofits and other educational institutions to train the next generation of cybersecurity workers.

Generative AI is creating unparalleled opportunities to empower workers globally, but only if everyone has the skills to use it.

In June 2023, we launched an AI Skills initiative to help everyone learn how to harness the power of AI.

This includes a new LinkedIn learning pathway offering new coursework on learning the foundations of generative AI.

We also launched a new global grant challenge to uncover new ways of training workers on generative AI and provide greater access to digital learning events and resources.

Additionally, we extended our reach in rural communities, including through our TechSpark initiative in the United States.

As of June 2024, we’ve helped more than 2.5 million people in 92% of the world’s countries learn how to use AI.

Microsoft aims to recruit, develop, and retain world-changing talent from a diversity of backgrounds.

To foster their and our success, we seek to create an environment where people can thrive and do their best work.

We strive to maximize the potential of our human capital resources by creating a respectful, rewarding, and inclusive work environment that enables our global employees to create products and services that further our mission.

Microsoft’s culture is grounded in growth mindset.

This means everyone is on a continuous journey to learn and grow, operating as one company instead of multiple siloed businesses.

Our culture also embeds the security of customers and Microsoft as a priority for every employee and across all of our organizations.

PART I

Our total compensation opportunity is highly differentiated and market competitive.

Our intended result is a global performance and development approach that fosters our culture, drives company performance, and competitive compensation that ensures equitable pay by role while supporting pay for performance.

Diversity and inclusion are core to our business.

As reported in our Global Diversity and Inclusion Reports, we monitor pay equity and career progress across multiple dimensions.

We encourage every person at Microsoft to play an active role in creating an inclusive environment.

Refer to Note [removed: 15] [added: 14] – Contingencies of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for information regarding legal proceedings in which we are involved.

| | For the Fiscal Year Ended June [removed: 30, 2024] [added: 30, 2025] |

As of December 31, [removed: 2023,] [added: 2024,] the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was [removed: $2.8] [added: $3.1] trillion based on the closing sale price as reported on the NASDAQ National Market System.

As of July [removed: 25, 2024,] [added: 24, 2025,] there were [removed: 7,433,038,381] [added: 7,433,166,379] shares of common stock outstanding.

Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on December [removed: 10, 2024] [added: 5, 2025] are incorporated by reference into Part III.

For the Fiscal Year Ended June 30, [removed: 2024][added: 2025]

| | | | | [Information about our Executive Officers](#information_about_our_executive_ficers) | | [removed: 18] [added: 14] | |

| | | Item 1A. | | [Risk Factors](#item_1a_risk_factors) | | [removed: 20] [added: 16] | |

| | | Item 1B. | | [Unresolved Staff Comments](#item_1b_unresolved_staff_comments) | | [removed: 34] [added: 30] | |

| | | Item 1C. | | [Cybersecurity](#item_1c_cybersecurity) | | [removed: 34] [added: 30] | |

| | | Item 2. | | [Properties](#item_2_properties) | | [removed: 36] [added: 32] | |

| | | Item 3. | | [Legal Proceedings](#item_3_legal_proceedings) | | [removed: 36] [added: 32] | |

| | | Item 4. | | [Mine Safety Disclosures](#item_4_mine_safety_disclosures) | | [removed: 36] [added: 32] | |

| | | Item 5. | | [Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](#item5_market_for_registrants) | | [removed: 37] [added: 33] | |

| | | Item 6. | | [\[Reserved\]](#item_6_reserved) | | [removed: 38] [added: 34] | |

| | | Item 7. | | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#item_7_managements_discussion_analysis_f) | | [removed: 39] [added: 35] | |

| | | Item 7A. | | [Quantitative and Qualitative Disclosures About Market Risk](#item_7a_quantitative_qualitative_disclos) | | [removed: 55] [added: 49] | |

| | | Item 8. | | [Financial Statements and Supplementary Data](#item_8_financial_statements_and_supplem) | | [removed: 56] [added: 50] | |

| | | Item 9. | | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#item_9_changes_in_disagreements_with_acc) | | [removed: 98] [added: 89] | |

| | | Item 9A. | | [Controls and Procedures](#item_9a_controls_procedures) | | [removed: 98] [added: 89] | |

| | | | | [Report of Management on Internal Control over Financial Reporting](#report_management_on_internal_control_ov) | | [removed: 98] [added: 89] | |

| | | | | [Report of Independent Registered Public Accounting Firm](#report_independent_registered_public_acc) | | [removed: 99] [added: 90] | |

| | | Item 9B. | | [Other Information](#item_9b_or_information) | | [removed: 101] [added: 91] | |

| | | Item 9C. | | [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](#item_9c_disclosure_regarding_foreign_jur) | | [removed: 101] [added: 91] | |

| | | Item 10. | | [Directors, Executive Officers, and Corporate Governance](#item_10_directors_executive_ficers_corpo) | | [removed: 101] [added: 91] | |

| | | Item 11. | | [Executive Compensation](#item_11_executive_compensation) | | [removed: 102] [added: 91] | |

| | | Item 12. | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#item_12_security_ownership_certain_benef) | | [removed: 102] [added: 91] | |

| | | Item 13. | | [Certain Relationships and Related Transactions, and Director Independence](#item_13_certain_relationships_related_tr) | | [removed: 102] [added: 91] | |

| | | Item 14. | | [Principal Accountant Fees and Services](#item_14_principal_accounting_fees_servic) | | [removed: 102] [added: 92] | |

| | | Item 15. | | [Exhibit and Financial Statement Schedules](#item_15_exhibits_financial_statement_sch) | | [removed: 103] [added: 93] | |

| | | Item 16. | | [Form 10-K Summary](#item_16_form_10k_summary) | | [removed: 110] [added: 100] | |

Microsoft is a technology company committed to making digital technology and artificial intelligence (“AI”) available broadly and doing so [removed: responsibly, with a mission to empower every person and every organization on the planet to achieve more.][added: responsibly.]

We strive to create [removed: local] opportunity, growth, and impact in every country around the world.

We believe AI should be as empowering [removed: across communities] as it is powerful, and we’re committed to [removed: ensuring it is responsibly designed] [added: designing] and [removed: built] [added: deploying AI responsibly] with safety and security from the outset.

[removed: Reinvent productivity] [added: Productivity] and [removed: business processes.][added: Business Processes]

[removed: Create more personal computing.][added: More Personal Computing]

Microsoft 365 [added: Commercial] is an [removed: AI first] [added: AI-powered business and productivity solutions] platform that brings together Office, Windows, [added: Microsoft 365] Copilot, and Enterprise Mobility + Security to help organizations empower their employees.

The Microsoft Cloud provides [removed: the best] integration across the technology stack while offering openness, improving time to value, reducing costs, and increasing agility.

[removed: As] [added: Build] the [added: intelligent cloud and intelligent edge platform to provide a] foundation [removed: of the Microsoft Cloud, Azure uniquely offers] [added: for our customers’ digital workloads including] hybrid consistency, developer productivity, data and AI capabilities, and trusted security and compliance.

We offer supercomputing power for AI at scale to run large workloads, complemented by our rapidly expanding portfolio of AI cloud services [added: (including the latest models)] and hardware, which includes custom-built silicon and strong partnerships with chip manufacturers.

[removed: Microsoft offers] [added: We prioritize security above all else and we offer our] customers integrated [added: AI-driven] products addressing security, compliance, identity, management, and privacy across customers’ multi-cloud, application, and device assets.

| | | | | [Signatures](#signatures) | | 101 | |

Our mission is to empower every person and every organization on the planet to achieve more.

We develop and support a broad portfolio of technology solutions for individuals and businesses, focusing on secure, trusted, and innovative platforms and tools that meet evolving customer needs across cloud computing, productivity and collaboration, and personal computing.

AI is fundamentally transforming productivity for every individual, organization, and industry.

Microsoft's AI offerings span every layer of the technology stack, enabling transformative outcomes across sectors and unlocking opportunity for every country, community, and individual.

Reinvent productivity and business processes to help organizations and individuals work and collaborate more securely and efficiently.

Providing training on generative AI and greater access to digital learning and resources through skilling programs and initiatives, grants, and LinkedIn learning pathways.

Progress toward these goals can be found in our annual Environmental Sustainability Report.

OPERATING SEGMENTS

We operate our business and report our financial performance using three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.

Our segments provide management with a comprehensive financial view of our key businesses.

The segments enable the alignment of strategies and objectives across the development, sales, marketing, and services organizations, and they provide a framework for timely and rational allocation of resources within businesses.

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.

Additional information on our operating segments and geographic and product information is contained in Note 18 – Segment Information and Geographic Data of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

Our reportable segments are described below.

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, 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.

Microsoft 365 Commercial Products and Cloud Services

Growth depends on our ability to reach new users in new markets such as frontline workers, small and medium businesses, and growth markets, as well as add AI-enabled tools, features, and agentic scenarios to our core product and service offerings across communication, collaboration, analytics, security, compliance, and other AI business productivity categories.

Microsoft 365 Commercial revenue is mainly affected by a combination of continued installed base growth and average revenue per user expansion, as well as the continued shift from Office licensed on-premises to Microsoft 365.

Microsoft 365 Consumer Products and Cloud Services

Microsoft 365 Consumer is designed to increase personal productivity and creativity through a range of products and services.

Growth depends on our ability to reach new users, add value to our core product set with new features including AI tools, and continue to expand our product and service offerings into new markets.

Microsoft 365 Consumer cloud revenue and Office Consumer products revenue is mainly affected by the percentage of customers that buy Office with their new devices and the continued shift from Office licensed on-premises to Microsoft 365 Consumer subscriptions.

Microsoft 365 Consumer cloud revenue is also affected by the demand for communication and storage through Outlook.com and OneDrive, which is largely driven by subscriptions and advertising.

LinkedIn

LinkedIn connects the world’s professionals to make them more productive and successful and transforms the way companies hire, market, sell, and learn.

In addition to LinkedIn’s free services, LinkedIn offers monetized solutions designed to offer AI-enabled insights and productivity: Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.

Growth will depend on our ability to increase LinkedIn member engagement on the platform and our ability to continue offering insight and AI-enabled services that provide value for our members and customers.

LinkedIn revenue is mainly affected by demand from enterprises and professionals for subscriptions to Talent Solutions, Sales Solutions, and Premium Subscriptions offerings, as well as member engagement and the quality of the sponsored content delivered to those members to drive Marketing Solutions.

Dynamics Products and Cloud Services

Dynamics provides cloud-based and on-premises business solutions for financial management, enterprise resource planning (“ERP”), customer relationship management (“CRM”), and supply chain management, as well as agentic AI and other low code application development platforms, for small and medium businesses, large organizations, and divisions of global enterprises.

Dynamics revenue is driven by the number of users licensed and applications consumed, expansion of average revenue per user, and the continued shift to Dynamics 365, a unified set of cloud-based intelligent business applications, including our low code development platforms, such as Power Apps and Power Automate.

*Competition*

| | | | | [Signatures](#signatures) | | 111 | |

Embracing Our Future

We create platforms and tools, powered by AI, that deliver innovative solutions that meet the evolving needs of our customers.

From infrastructure and data, to business applications and collaboration, we provide unique, differentiated value to customers.

We have entered a new age of AI that will fundamentally transform productivity for every individual, organization, and industry on earth, while helping us address some of our most pressing challenges.

Microsoft's AI offerings, including Copilot and our Copilot stack, are already orchestrating a new era of AI transformation, driving better business outcomes across every role and industry.

As a company, we believe we can be the democratizing force for this new generation of technology and the opportunity it will help unlock for every country, community, and individual.

Build the intelligent cloud and intelligent edge platform.

Reinvent Productivity and Business Processes

At Microsoft, we provide technology and resources to help our customers create a secure, productive work environment.

Our family of products plays a key role in the ways the world works, learns, and connects.

Our growth depends on securely delivering continuous innovation and advancing our leading productivity and collaboration tools and services, including Microsoft 365, LinkedIn, and Dynamics 365.

Copilot for Microsoft 365 combines AI with business data in the Microsoft Graph and Microsoft 365 applications.

Microsoft Teams is a comprehensive platform for communication and collaboration, with meetings, calling, chat, file collaboration, and the ability to bring all of the applications teams use into a single place.

Microsoft Viva is an employee experience platform that brings together communications, knowledge, learning, resources, and insights.

Together, the Microsoft Cloud, Dynamics 365, Microsoft Teams, and our AI offerings bring a new era of collaborative applications for every role and business function to get insights and business impact faster.

Dynamics 365 is a portfolio of intelligent business applications that delivers operational efficiency and breakthrough customer experiences.

Our role-based extensions of Microsoft Copilot – Copilot for Sales, Copilot for Service, and Copilot for Finance – bring together the power of Copilot for Microsoft 365 with role-specific insights and workflow assistance to streamline business processes.

Copilot Studio allows customers to customize Copilot for Microsoft 365 or build their own Copilot.

Microsoft Power Platform helps domain experts drive productivity gains with low-code/no-code tools, robotic process automation, virtual agents, and business intelligence.

Copilot Pro is a consumer subscription service that offers faster and more powerful AI assistance in Microsoft 365 apps and on the web.

LinkedIn combines our unique data with this new generation of AI to transform the way professionals learn, sell, market, and get hired.

Build the Intelligent Cloud and Intelligent Edge Platform

We continue to invest in high performance and sustainable computing to meet the growing demand for fast access to Microsoft services provided by our network of cloud computing and AI infrastructure and datacenters.

We have introduced purpose-built cloud infrastructure for AI workloads including a custom AI accelerator, Azure Maia, and a custom in-house central processing unit, Azure Cobalt.

Our AI platform, Azure AI, is helping organizations transform, bringing intelligence and insights to the hands of their employees and customers to solve their most pressing challenges.

We offer a wide selection of industry-leading frontier and open models, including from partners, as well as state-of-the-art tooling, and AI-optimized infrastructure, delivering the Copilot stack for Microsoft, enterprises, and developers.

Organizations large and small are deploying Azure AI solutions to achieve more at scale, more easily, with the proper enterprise-level responsible AI and safety and security protections.

Azure AI Studio provides a full lifecycle toolchain customers can use to ground these models on their own data, create prompt workflows, and help ensure they are deployed and used safely.

GitHub Copilot is at the forefront of AI-powered software development, giving developers a tool to write code easier and faster.

From GitHub to Visual Studio, we provide a developer tool chain for everyone, no matter the technical experience, across all platforms.

We have a long-term partnership with OpenAI, a leading AI research and deployment company.

We deploy OpenAI’s models across our consumer and enterprise products.

As OpenAI’s exclusive cloud provider, Azure powers all of OpenAI's workloads.

We have also increased our investments in the development and deployment of specialized supercomputing systems to accelerate OpenAI’s research.

Our hybrid infrastructure offers integrated, end-to-end security, compliance, identity, and management capabilities to support the real-world needs and evolving regulatory requirements of commercial customers and enterprises.

Our industry clouds bring together capabilities across the entire Microsoft Cloud, along with industry-specific customizations.

Azure Arc simplifies governance and management by delivering a consistent multi-cloud and on-premises management platform.

The Microsoft Intelligent Data Platform fully integrates databases, analytics, and governance.

Microsoft Fabric is an end-to-end, unified analytics platform that brings together all the data and analytics tools that organizations need.

We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of our fiscal year [removed: 2024] [added: 2025] that remain unresolved.

We utilize machine learning and AI-powered security tools to gain insights from [removed: over 78] [added: 84] trillion signals per [removed: day and over 135 million managed devices.][added: day.]

We track over [removed: 300] [added: 1,500] unique threat actors, including [removed: 160] [added: more than 600] nation-state [removed: actors] [added: actors, 300 cybercriminal groups, 200 influence operation groups,] and [removed: 50 ransomware groups.][added: hundreds of others.]

Presentations to the Board of Directors are made by senior management, including our Chief Information Security Officer (“CISO”), our EVP of Microsoft Security, [added: our EVP of Cloud + AI,] and the head of our Customer Security and Trust organization.

Our CISO leads the strategy, engineering, and operations of cybersecurity across the company, and reports to the EVP of [removed: Microsoft Security.][added: Cloud + AI.]

In addition to the Board’s oversight of cybersecurity risk, to support the CISO, we have established a Cybersecurity Governance Council (“CGC”) charged with overseeing initiatives that safeguard Microsoft’s [removed: infrastructure.][added: computing environments, products, and services.]

The table below shows a summary of the square footage of our properties owned and leased domestically and internationally as of June 30, [removed: 2024:][added: 2025:]

| U.S. | | | [removed: 30] [added: 34] | | | | [removed: 20] [added: 23] | | | | [removed: 50] [added: 57] | |

| International | | | [removed: 10] [added: 13] | | | | [removed: 25] [added: 27] | | | | [removed: 35] [added: 40] | |

| Total | | | [removed: 40] [added: 47] | | | | [removed: 45] [added: 50] | | | | [removed: 85] [added: 97] | |

On July [removed: 25, 2024,] [added: 24, 2025,] there were [removed: 81,346] [added: 77,014] registered holders of record of our common stock.

Following are our monthly share repurchases for the fourth quarter of fiscal year [removed: 2024:][added: 2025:]

Our Board of Directors declared the following dividends during the fourth quarter of fiscal year [removed: 2024:][added: 2025:]

We returned [removed: $8.4] [added: $9.4] billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year [removed: 2024.][added: 2025.]

Refer to Note [removed: 16] [added: 15] – Stockholders’ Equity of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion regarding share repurchases and dividends.

| April 1, 2025 – April 30, 2025 | | | 3,180,776 | | | | $ | 376.90 | | | | 3,180,776 | | | $ | 59,350 | |

| May 1, 2025 – May 31, 2025 | | | 2,360,700 | | | | | 448.01 | | | | 2,360,700 | | | | 58,293 | |

| June 1, 2025 – June 30, 2025 | | | 1,979,017 | | | | | 476.78 | | | | 1,979,017 | | | | 57,349 | |

| | | | 7,520,493 | | | | | | | | | 7,520,493 | | | | | |

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 commenced in April 2025, following completion of the program approved on September 14, 2021, has no expiration date, and may be terminated at any time.

| June 10, 2025 | | | August 21, 2025 | | | | September 11, 2025 | | | $ | 0.83 | | | $ | 6,170 | |

RECENT SALES OF UNREGISTERED SECURITIES

In May 2025, as consideration for the acquisition of a business, we issued 117,623 shares of common stock to the seller in connection with the closing in reliance on exemption from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) thereof because the issuance of securities did not involve a public offering.

| April 1, 2024 – April 30, 2024 | | | 2,444,905 | | | | $ | 413.75 | | | | 2,444,905 | | | $ | 12,138 | |

| May 1, 2024 – May 31, 2024 | | | 2,233,450 | | | | | 416.85 | | | | 2,233,450 | | | | 11,207 | |

| June 1, 2024 – June 30, 2024 | | | 1,963,873 | | | | | 436.58 | | | | 1,963,873 | | | | 10,349 | |

| | | | 6,642,228 | | | | | | | | | 6,642,228 | | | | | |

| June 12, 2024 | | | August 15, 2024 | | | | September 12, 2024 | | | $ | 0.75 | | | $ | 5,575 | |

This section generally discusses the results of our operations for the year ended June 30, [removed: 2024] [added: 2025] compared to the year ended June 30, [removed: 2023.][added: 2024.]

For a discussion of the year ended June 30, [removed: 2023] [added: 2024] compared to the year ended June 30, [removed: 2022,] [added: 2023,] please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended June 30, [removed: 2023.][added: 2024 and our Form 8-K filed on December 3, 2024.]

Highlights from fiscal year [removed: 2024] [added: 2025] compared with fiscal year [removed: 2023] [added: 2024] included:

Microsoft Cloud revenue increased 23% to [removed: $137.4] [added: $168.9] billion.

[removed: Office] [added: Microsoft 365] Commercial products and cloud services revenue increased 14% driven by [removed: Office] [added: Microsoft] 365 Commercial [added: cloud revenue] growth of [removed: 16%.][added: 15%.]

[removed: Office] [added: Microsoft 365] Consumer products and cloud services revenue increased [removed: 4% and Microsoft 365 Consumer subscribers grew to 82.5 million.][added: $756 million or 11%.]

Dynamics products and cloud services revenue increased [removed: 19%] [added: 15%] driven by Dynamics 365 [added: revenue] growth of [removed: 24%.][added: 19%.]

Server products and cloud services revenue increased [removed: 22%] [added: 23%] driven by Azure and other cloud services [added: revenue] growth of [removed: 30%.][added: 34%.]

Xbox content and services revenue increased [removed: 50%] [added: 16%] driven by [removed: 44 points of net] [added: the] impact [removed: from] [added: of] the Activision Blizzard [removed: Inc. (“Activision Blizzard”) acquisition.][added: acquisition and Xbox Game Pass.]

Search and news advertising revenue excluding traffic acquisition costs increased [removed: 12%.][added: 20%.]

Refer to Note [removed: 8] [added: 10] – [removed: Business Combinations] [added: Debt] of the Notes to Financial Statements (Part II, Item 8 of this Form [removed: 10-K) for further discussion.][added: 10-K).]

Industry [removed: Trends][added: Trends and Opportunities]

Fluctuations in the U.S. dollar relative to certain foreign currencies did not have a material impact on reported revenue and expenses from our international operations in fiscal year [removed: 2024.][added: 2025.]

Additional information on our reportable segments is contained in Note [removed: 19] [added: 18] – Segment Information and Geographic Data of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

Our commercial business primarily consists of Server products and cloud services, [removed: Office Commercial, Windows Commercial,] [added: Microsoft 365 Commercial products and cloud services,] the commercial portion of LinkedIn, [removed: Enterprise] [added: Dynamics products] and [removed: partner] [added: cloud] services, and [removed: Dynamics.][added: Enterprise and partner services.]

| Microsoft Cloud revenue and revenue growth | | Revenue from [added: Microsoft 365 Commercial cloud,] Azure and other cloud services, [removed: Office 365 Commercial,] the commercial portion of LinkedIn, [removed: Dynamics 365,] and [removed: other commercial cloud properties] [added: Dynamics 365] |

| [removed: Office] [added: Microsoft 365] Commercial [removed: products and] cloud [removed: services] revenue growth | | Revenue from [removed: Office Commercial products and cloud services (Office 365 subscriptions, the Office 365 portion of] Microsoft 365 Commercial subscriptions, [removed: and Office licensed on-premises),] comprising [removed: Office,] [added: Microsoft 365 Commercial, Enterprise Mobility + Security, the cloud portion of Windows Commercial, the per-user portion of Power BI,] Exchange, SharePoint, Microsoft Teams, [removed: Office] [added: Microsoft] 365 Security and Compliance, [removed: Microsoft Viva,] and [removed: Copilot for] Microsoft 365 [added: Copilot] |

| [removed: Office] [added: Microsoft 365] Consumer [removed: products and] cloud [removed: services] revenue growth | | Revenue from [removed: Office Consumer products and cloud services, including] Microsoft 365 Consumer [removed: and Copilot Pro subscriptions, Office licensed on-premises,] [added: subscriptions] and other [removed: Office] [added: consumer] services |

| [removed: Office] [added: Microsoft] 365 Commercial seat growth | | The number of [removed: Office] [added: Microsoft] 365 Commercial seats at end of period where seats are paid users covered by [removed: an Office] [added: a Microsoft] 365 Commercial subscription |

| Microsoft 365 Consumer subscribers | | The number of Microsoft 365 Consumer [removed: and Copilot Pro] subscribers at end of period |

| Dynamics [removed: products and cloud services] [added: 365] revenue growth | | Revenue from Dynamics [removed: products and cloud services, including Dynamics] 365, [removed: comprising] [added: including] a set of intelligent, cloud-based applications across ERP, CRM, Power Apps, and Power [removed: Automate; and on-premises ERP and CRM applications] [added: Automate] |

Metrics related to our More Personal Computing segment assess the performance of [added: our] key [removed: lines of business within this segment.][added: consumer businesses.]

| Windows OEM [added: and Devices] revenue growth | | Revenue from sales of Windows Pro and non-Pro licenses sold through the OEM channel [added: and sales of first-party Devices, including Surface and PC accessories] |

| Xbox content and services revenue growth | | Revenue from Xbox content and services, comprising [removed: first-party content (such as Activision Blizzard)] [added: first-] and third-party [removed: content, including] [added: content (including] games and in-game [removed: content;] [added: content),] Xbox Game Pass and other [removed: subscriptions;] [added: subscriptions,] Xbox Cloud [removed: Gaming; advertising; third-party disc royalties;] [added: Gaming, advertising,] and other cloud services |

| (In millions, except percentages and per share amounts) | | [removed: 2024] [added: 2025] | | | | [removed: 2023] [added: 2024] | | | | Percentage Change | | |

| Gross margin | | | [removed: 171,008] [added: 193,893] | | | | [removed: 146,052] [added: 171,008] | | | | [removed: 17%] [added: 13%] | |

| Operating income | | | [removed: 109,433] [added: 128,528] | | | | [removed: 88,523] [added: 109,433] | | | | [removed: 24%] [added: 17%] | |

| Diluted earnings per share | | | [removed: 11.80] [added: 13.64] | | | | [removed: 9.68] [added: 11.80] | | | | [removed: 22%] [added: 16%] | |

Fiscal Year [removed: 2024] [added: 2025] Compared with Fiscal Year [removed: 2023][added: 2024]

Revenue increased [removed: $33.2] [added: $36.6] billion or [removed: 16% driven by] [added: 15% with] growth across each of our segments.

Productivity and Business Processes revenue increased driven by [removed: Office] [added: Microsoft] 365 [removed: Commercial.][added: Commercial cloud.]

More Personal Computing revenue increased driven by [removed: Gaming.][added: Gaming and Search and news advertising.]

[removed: Cost of] [added: Gaming] revenue increased [removed: $8.3] [added: $2.0] billion or [removed: 13%] [added: 9%] driven by growth in [removed: Microsoft Cloud] [added: Xbox content] and [removed: Gaming,] [added: services,] offset in part by a decline in [removed: Devices.][added: Xbox hardware.]

Gross margin increased [removed: $25.0] [added: $22.9] billion or [removed: 17% driven by] [added: 13% with] growth across each of our segments.

Gross margin percentage increased [removed: slightly.][added: with improvement across all businesses.]

[removed: Microsoft Cloud gross] [added: Gross] margin percentage decreased slightly [removed: to 71%.][added: driven by Intelligent Cloud, offset in part by More Personal Computing.]

[removed: Excluding the impact of the change in accounting estimate, Microsoft Cloud gross] [added: Gross] margin percentage [removed: increased] [added: decreased] slightly [added: primarily] driven by [removed: improvements in Azure and Office 365 Commercial, inclusive] [added: the impact] of scaling our AI infrastructure, offset in part by [removed: sales mix shift to Azure.][added: efficiency gains in Microsoft 365 Commercial cloud.]

Operating expenses increased [removed: $4.0] [added: $3.8] billion or [removed: 7%] [added: 6%] driven by [added: investments in cloud and AI engineering and] Gaming, [removed: with 7 points] [added: including the impact] of [removed: growth from] the Activision Blizzard [removed: acquisition, and investments in cloud engineering, offset in part by the prior year Q2 charge.][added: acquisition.]

Operating income increased [removed: $20.9] [added: $19.1] billion or [removed: 24% driven by] [added: 17% with] growth across each of our segments.

| (In millions, except percentages) | | [removed: 2024] [added: 2025] | | | | [removed: 2023] [added: 2024] | | | | Percentage Change | | |

Xbox content and services revenue increased 16%.

Microsoft and OpenAI maintain a long-term strategic partnership originally established in 2019.

Microsoft is a major investor in OpenAI, and the companies have reciprocal revenue-sharing arrangements.

We hold rights to OpenAI’s intellectual property, including models and infrastructure, for integration into our products.

The OpenAI API is exclusive to Azure, runs on Azure, and is available through the Azure OpenAI Service.

We also have a right of first refusal on OpenAI's new capacity needs.

Further, global, regional, and local economic developments and changes in global trade policies such as restrictions on international trade, including tariffs and other controls on imports or exports, could result in increased supply chain challenges, cost volatility, and consumer and economic uncertainty which may adversely affect our results of operations.

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.

In the first quarter of fiscal year 2025, we made updates to our metrics in connection with the segment changes described above.

These changes align our metrics with how we manage and monitor certain businesses.

The key change was bringing the commercial components of Microsoft 365 together and creating a new Microsoft 365 Commercial cloud revenue growth metric.

Other changes include combining Windows OEM and Devices into a single revenue growth metric that brings revenue from PC market-driven businesses together, as well as elevating our cloud revenue growth metrics to align to our strategic focus on cloud growth.

The metrics primarily reflect growth across our cloud services.

| Revenue | | $ | 281,724 | | | $ | 245,122 | | | | 15% | |

| Net income | | | 101,832 | | | | 88,136 | | | | 16% | |

Cost of revenue increased $13.7 billion or 19% driven by growth in Microsoft Cloud.

Microsoft Cloud gross margin percentage decreased to 69% driven by the impact of scaling our AI infrastructure, offset in part by efficiency gains in Azure.

| Revenue | | $ | 120,810 | | | $ | 106,820 | | | | 13% | |

| Cost of revenue | | | 22,422 | | | | 19,611 | | | | 14% | |

| Operating expenses | | | 28,615 | | | | 27,548 | | | | 4% | |

| Revenue | | $ | 106,265 | | | $ | 87,464 | | | | 21% | |

| Cost of revenue | | | 40,171 | | | | 29,611 | | | | 36% | |

| Operating expenses | | | 21,505 | | | | 20,040 | | | | 7% | |

| Operating Income | | $ | 44,589 | | | $ | 37,813 | | | | 18% | |

| Revenue | | $ | 54,649 | | | $ | 50,838 | | | | 7% | |

| Cost of revenue | | | 25,238 | | | | 24,892 | | | | 1% | |

| Operating expenses | | | 15,245 | | | | 13,987 | | | | 9% | |

| Operating Income | | $ | 14,166 | | | $ | 11,959 | | | | 18% | |

| Total | | | | | | | | | | | | |

| Revenue | | $ | 281,724 | | | $ | 245,122 | | | | 15% | |

| Cost of revenue | | | 87,831 | | | | 74,114 | | | | 19% | |

| Operating expenses | | | 65,365 | | | | 61,575 | | | | 6% | |

| Operating Income | | $ | 128,528 | | | $ | 109,433 | | | | 17% | |

Fiscal Year 2025 Compared with Fiscal Year 2024

Microsoft 365 Commercial products revenue grew 7% driven by the Windows Commercial on-premises components of Microsoft 365 suite sales and an increase in Office transactional purchasing with the launch of Office 2024.

Microsoft 365 Consumer cloud revenue grew 11% driven by Microsoft 365 Consumer subscriber growth of 8% to 89.0 million, as well as growth in revenue per user from the price increase announced in January 2025.

Dynamics products and cloud services revenue increased $996 million or 15% driven by growth in Dynamics 365, offset in part by a decline in Dynamics on-premises products.

Windows revenue increased 8% with Windows original equipment manufacturer licensing (“Windows OEM”) revenue growth of 7% and Windows Commercial products and cloud services revenue growth of 11%.

Devices revenue decreased 15%.

The net impact reflects the change of Activision Blizzard content from third-party to first-party.

On October 13, 2023, we completed our acquisition of Activision Blizzard for a total purchase price of $75.4 billion, consisting primarily of cash.

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.

Change in Accounting Estimate

In July 2022, we completed an assessment of the useful lives of our server and network equipment.

Due to investments in software that increased efficiencies in how we operate our server and network equipment, as well as advances in technology, we determined we should increase the estimated useful lives of both server and network equipment from four years to six years.

This change in accounting estimate was effective beginning fiscal year 2023.

In the first quarter of fiscal year 2024, we made updates to the presentation and method of calculation for certain metrics, revising our Microsoft Cloud revenue metric to include revenue growth and expanding our Microsoft 365 Consumer subscribers metric to include Microsoft 365 Basic subscribers, aligning with how we manage our business.

| | | |

The metrics reflect our cloud and on-premises product strategies and trends.

| Server products and cloud services revenue growth | | Revenue from Server products and cloud services, including Azure and other cloud services; SQL Server, Windows Server, Visual Studio, System Center, and related Client Access Licenses (“CALs”); and Nuance and GitHub |

These metrics provide strategic product insights which allow us to assess the performance across our commercial and consumer businesses.

As we have diversity of target audiences and sales motions within the Windows business, we monitor metrics that are reflective of those varying motions.

| Windows Commercial products and cloud services revenue growth | | Revenue from Windows Commercial products and cloud services, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings |

| Devices revenue growth | | Revenue from Devices, including Surface, HoloLens, and PC accessories |

| Revenue | | $ | 245,122 | | | $ | 211,915 | | | | 16% | |

| Net income | | | 88,136 | | | | 72,361 | | | | 22% | |

| Adjusted gross margin (non-GAAP) | | | 171,008 | | | | 146,204 | | | | 17% | |

| Adjusted operating income (non-GAAP) | | | 109,433 | | | | 89,694 | | | | 22% | |

| Adjusted net income (non-GAAP) | | | 88,136 | | | | 73,307 | | | | 20% | |

| Adjusted diluted earnings per share (non-GAAP) | | | 11.80 | | | | 9.81 | | | | 20% | |

Adjusted gross margin, operating income, net income, and diluted earnings per share (“EPS”) are non-GAAP financial measures.

Prior year non-GAAP financial measures exclude the impact of a $1.2 billion charge in the second quarter of fiscal year 2023 (“Q2 charge”), which included employee severance expenses, impairment charges resulting from changes to our hardware portfolio, and costs related to lease consolidation activities.

Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in accordance with GAAP to non-GAAP financial results.

Excluding the impact of the change in accounting estimate for the useful lives of our server and network equipment, gross margin percentage increased 2 points driven by improvement in More Personal Computing.

Prior year gross margin, operating income, net income, and diluted EPS were negatively impacted by the Q2 charge, which resulted in decreases of $152 million, $1.2 billion, $946 million, and $0.13, respectively.

| Revenue | | | | | | | | | | | | |

| Intelligent Cloud | | | 105,362 | | | | 87,907 | | | | 20% | |

| Total | | $ | 245,122 | | | $ | 211,915 | | | | 16% | |

| Productivity and Business Processes | | $ | 40,540 | | | $ | 34,189 | | | | 19% | |

| More Personal Computing | | | 19,309 | | | | 16,450 | | | | 17% | |

| Total | | $ | 109,433 | | | $ | 88,523 | | | | 24% | |

Microsoft 365 Consumer subscribers grew 10% to 82.5 million.

Gross margin percentage decreased slightly.

Excluding the impact of the change in accounting estimate, gross margin percentage increased slightly driven by improvement in Office 365 Commercial.

Operating expenses increased $159 million or 1%.

Server products revenue increased 3% driven by continued demand for our hybrid solutions, including Windows Server and SQL Server running in multi-cloud environments.

| [removed: (In millions) | |] June 30, [added: | | 2025 | | | |] 2024 | | | | [removed: June 30,] 2023 | | |

| [removed: | | June] [added: Year Ended June] 30, [removed: 2024] | | [removed: | |] [added: 2025] | | | [removed: June 30, 2023] | [added: 2024] | | | | [added: 2023] | | |

| Year Ended June 30, | | [removed: 2024] [added: 2025] | | | | [removed: 2023] [added: 2024] | | | | [removed: 2022] [added: 2023] | | |

| [removed: Amount] [added: Amounts] reclassified from accumulated other comprehensive loss | | | [removed: (48] [added: (82] | ) | | | [removed: 61] [added: 38] | | | | [removed: (79] [added: (48] | ) |

| [removed: June] [added: Year Ended June] 30, | | [added: | | | | 2025 | | | | | |] 2024 | | | | [removed: 2023] | | [added: 2023] | [added: |]

| Year Ended June 30, | | [added: 2025] | [added: | | |] 2024 | | [added: | | 2023 | | |]

| Year Ended June 30, | | | [added: 2025 | | | |] 2024 | | | | 2023 | |

| [removed: Total] [added: Total] | | | | | | [removed: $] | [removed: 18,761] | | [added: | | | |]

| [removed: Productivity] [added: Productivity] and Business [removed: Processes | | $ | 24,811 | | | $ | 11 | | | $ | (47 | ) | | $ | 24,775 |] [added: Processes] | | [removed: $] | [removed: 0] | | | [removed: $] | [removed: 2] | | | [removed: $] | [removed: 24,777] | |

[removed: See] [added: Refer to] Note [removed: 8] [added: 1] – [removed: Business Combinations] [added: Accounting Policies] for further [removed: information.*][added: information.]

| [removed: June] [added: Year Ended June] 30, | | [removed: | | | |] [added: 2025] | | | | 2024 | | | | [removed: | | | | | | | |] 2023 | | |

| Year Ended June 30, | | [removed: 2024] [added: 2025] | | | | [added: 2024] | | | | 2023 | | | [removed: | | | |]

[removed: Provision] [added: | Tax benefit included in provision] for [removed: Income Taxes][added: income taxes | | | (3 | ) | | | (11 | ) | | | (20 | ) |]

| Stock-based compensation expense | | $ | [removed: 765] [added: 11,974] | | | $ | [removed: 681] [added: 10,734] | | [added: | $ | 9,611 | |]

| [removed: Intelligent Cloud] [added: Intelligent Cloud] | | | [removed: 23,117] | | | | [removed: 21,563] | | [added: | | | |]

| [removed: More] [added: More] Personal [removed: Computing] [added: Computing] | | | [removed: 6,188] | | | | [removed: 4,678] | | [added: | | | |]

| [removed: Year Ended June 30,] [added: Fiscal Year] 2024 | | | | | [added: | | | | | | | | | | | |]

| Balance, beginning of period | | $ | [removed: 53,813] [added: (3] | [added: )] | [added: | $ | (27 | ) | | $ | (13 | ) |]

| Balance, end of period | | $ | [removed: 60,184] [added: (8] | [added: )] | [added: | $ | (3 | ) | | $ | (27 | ) |]

| Declaration Date | [added: | |] Record Date | | | | [removed: |] Payment Date | | [removed: |] Dividend Per Share | | | | | Amount | | |

| Fiscal Year [removed: 2024] [added: 2025] | | | | | | | | | | | | | | (In millions) | | |

| [removed: September] [added: September] 19, [removed: 2023] [added: 2023] | | | [removed: November] [added: November] 16, [removed: 2023] [added: 2023] | | | | [removed: December] [added: December] 14, [removed: 2023] [added: 2023] | | | [removed: $] [added: $] | [removed: 0.75] [added: 0.75] | | | [removed: $] [added: $] | [removed: 5,574] [added: 5,574] | |

| [removed: November] [added: November] 28, [removed: 2023] [added: 2023] | | | [removed: February] [added: February] 15, [removed: 2024] [added: 2024] | | | | [removed: March] [added: March] 14, [removed: 2024] [added: 2024] | | | | [removed: 0.75] [added: 0.75] | | | | [removed: 5,573] [added: 5,573] | |

| [removed: March] [added: March] 12, [removed: 2024] [added: 2024] | | | [removed: May] [added: May] 16, [removed: 2024] [added: 2024] | | | | [removed: June] [added: June] 13, [removed: 2024] [added: 2024] | | | | [removed: 0.75] [added: 0.75] | | | | [removed: 5,574] [added: 5,574] | |

| [removed: June] [added: June] 12, [removed: 2024] [added: 2024] | | | [removed: August] [added: August] 15, [removed: 2024] [added: 2024] | | | | [removed: September] [added: September] 12, [removed: 2024] [added: 2024] | | | | [removed: 0.75] [added: 0.75] | | | | [removed: 5,575] [added: 5,574] | |

| [removed: Total] [added: Total] | | | | | | | | | | [removed: $] [added: $] | [removed: 3.00] [added: 3.00] | | | [removed: $] [added: $] | [removed: 22,296] [added: 22,295] | |

The dividend declared on June [removed: 12, 2024] [added: 10, 2025] was included in other current liabilities as of June 30, [removed: 2024.][added: 2025.]

NOTE [removed: 17] [added: 16] — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

| Balance, beginning of period | | $ | [removed: (27] [added: (2,625] | ) | | $ | [removed: (13] [added: (3,582] | ) | | $ | [removed: (19] [added: (2,138] | ) |

| Unrealized gains (losses), net of tax of [removed: $(4), $9,] [added: $20, $(4),] and [removed: $(15)] [added: $9] | | | [removed: (14] [added: 77] | [removed: )] | | | [removed: 34] [added: (14] | [added: )] | | | [removed: (57] [added: 34] | [removed: )] |

| Reclassification adjustments for (gains) losses included in other income (expense), net | | | [removed: 48] [added: (103] | [added: )] | | | [removed: (61] [added: 48] | [removed: )] | | | [removed: 79] [added: (61] | [added: )] |

| Tax expense (benefit) included in provision for income taxes | | | [removed: (10] [added: 21] | [removed: )] | | | [removed: 13] [added: (10] | [added: )] | | | [removed: (16] [added: 13] | [removed: )] |

| Amounts reclassified from accumulated other comprehensive loss | | | [removed: 38] [added: 14] | | | | [removed: (48] [added: 42] | [removed: )] | | | [removed: 63] [added: 79] | |

| Net change related to derivatives, net of tax of [removed: $6, $(4),] [added: $(1), $6,] and [removed: $1] [added: $(4)] | | | [removed: 24] [added: (5] | [added: )] | | | [removed: (14] [added: 24] | [removed: )] | | | [removed: 6] [added: (14] | [added: )] |

| Balance, end of period | | $ | [removed: (3] [added: (1,051] | ) | | $ | [removed: (27] [added: (2,625] | ) | | $ | [removed: (13] [added: (3,582] | ) |

| Unrealized gains (losses), net of tax of [removed: $247, $(393),] [added: $411, $247,] and [removed: $(1,440)] [added: $(393)] | | | [removed: 915] [added: 1,560] | | | | [removed: (1,523] [added: 915] | [removed: )] | | | [removed: (5,405] [added: (1,523] | ) |

| Reclassification adjustments for losses included in other income (expense), net | | | [removed: 53] [added: 17] | | | | [removed: 99] [added: 53] | | | | [removed: 57] [added: 99] | |

| Net change related to investments, net of tax of [removed: $258, $(373),] [added: $414, $258,] and [removed: $(1,428)] [added: $(373)] | | | [removed: 957] [added: 1,574] | | | | [removed: (1,444] [added: 957] | [removed: )] | | | [removed: (5,360] [added: (1,444] | ) |

| Balance, beginning of period | | $ | [removed: (2,734] [added: (2,962] | ) | | $ | [removed: (2,527] [added: (2,734] | ) | | $ | [removed: (1,381] [added: (2,527] | ) |

| Translation adjustments and other, net of tax of [removed: $0,] [added: $8,] $0, and $0 | | | [removed: (228] [added: 674] | [removed: )] | | | [removed: (207] [added: (228] | ) | | | [removed: (1,146] [added: (207] | ) |

| 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 | | | | 6,169 | |

| June 10, 2025 | | | August 21, 2025 | | | | September 11, 2025 | | | | 0.83 | | | | 6,170 | |

| Total | | | | | | | | | | $ | 3.32 | | | $ | 24,678 | |

| Interest rates | | | | 3.4% – 5.5% | | | | | | 3.8% – 5.6% | | | | | | 2.0% – 5.4% | | | |

| Granted (a) | | | 39 | | | | 413.90 | |

| Vested | | | (38 | ) | | | 293.25 | |

| Forfeited | | | (7 | ) | | | 317.23 | |

The primary profitability measure used by the CODM to review segment operating results is operating income.

The CODM uses operating income to allocate resources during our annual planning process and throughout the year, as well as to assess the performance of our segments, primarily by monitoring actual results compared to prior periods and expected results.

Windows and Devices, including Windows OEM licensing (Windows Pro and non-Pro licenses sold through the OEM channel) and Devices, comprising Surface and PC accessories.

| Revenue | | $ | 120,810 | | | $ | 106,820 | | | $ | 94,151 | |

| Cost of revenue | | | 22,422 | | | | 19,611 | | | | 17,202 | |

| Operating expenses | | | 28,615 | | | | 27,548 | | | | 26,875 | |

| Revenue | | $ | 106,265 | | | $ | 87,464 | | | $ | 72,944 | |

| Cost of revenue | | | 40,171 | | | | 29,611 | | | | 24,109 | |

| Operating expenses | | | 21,505 | | | | 20,040 | | | | 20,424 | |

| Operating Income | | $ | 44,589 | | | $ | 37,813 | | | $ | 28,411 | |

| Revenue | | $ | 54,649 | | | $ | 50,838 | | | $ | 44,820 | |

| Cost of revenue | | | 25,238 | | | | 24,892 | | | | 24,552 | |

| Operating expenses | | | 15,245 | | | | 13,987 | | | | 10,230 | |

| Operating Income | | $ | 14,166 | | | $ | 11,959 | | | $ | 10,038 | |

| Revenue | | $ | 281,724 | | | $ | 245,122 | | | $ | 211,915 | |

| Cost of revenue | | | 87,831 | | | | 74,114 | | | | 65,863 | |

| Operating expenses | | | 65,365 | | | | 61,575 | | | | 57,529 | |

| Operating Income | | $ | 128,528 | | | $ | 109,433 | | | $ | 88,523 | |

| Microsoft 365 Commercial products and cloud services | | | 87,767 | | | | 76,969 | | | | 66,949 | |

| Windows and Devices | | | 17,314 | | | | 17,026 | | | | 17,147 | |

| Microsoft 365 Consumer products and cloud services | | | 7,404 | | | | 6,648 | | | | 6,417 | |

| Total | | $ | 281,724 | | | $ | 245,122 | | | $ | 211,915 | |

We evaluated the appropriateness of the disclosures in relation to the underlying facts, judgments, and conclusions.

July 30, 2025

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

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Designated as Hedging Instruments | | | | | | | | |

| Foreign exchange contracts purchased | | $ | 1,492 | | | $ | 1,492 | |

| Interest rate contracts purchased | | | 1,100 | | | | 1,078 | |

| Not Designated as Hedging Instruments | | | | | | | | |

| Foreign exchange contracts purchased | | | 7,167 | | | | 7,874 | |

| Foreign exchange contracts sold | | | 31,793 | | | | 25,159 | |

| Equity contracts purchased | | | 4,016 | | | | 3,867 | |

| Equity contracts sold | | | 2,165 | | | | 2,154 | |

| Other contracts purchased | | | 2,113 | | | | 1,224 | |

| Other contracts sold | | | 811 | | | | 581 | |

Fair Values of Derivative Instruments

The following table presents our derivative instruments:

| | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | Derivative | | | Derivative | | | | Derivative | | | | Derivative | | | |

| (In millions) | | Assets | | | Liabilities | | | | Assets | | | | Liabilities | | | |

| Designated as Hedging Instruments | | | | | | | | | | | | | | | | |

| Foreign exchange contracts | | $ | 24 | | | $ | (76 | ) | | $ | 34 | | | $ | (67 | ) |

| Interest rate contracts | | | 19 | | | | 0 | | | | 16 | | | | 0 | |

| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |

| Foreign exchange contracts | | | 213 | | | | (230 | ) | | | 249 | | | | (332 | ) |

| Equity contracts | | | 63 | | | | (491 | ) | | | 165 | | | | (400 | ) |

| Other contracts | | | 12 | | | | (3 | ) | | | 5 | | | | (6 | ) |

| Gross amounts of derivatives | | | 331 | | | | (800 | ) | | | 469 | | | | (805 | ) |

| Gross amounts of derivatives offset in the balance sheets | | | (151 | ) | | | 152 | | | | (202 | ) | | | 206 | |

| Cash collateral received | | | 0 | | | | (104 | ) | | | 0 | | | | (125 | ) |

| Net amounts of derivatives | | $ | 180 | | | $ | (752 | ) | | $ | 267 | | | $ | (724 | ) |

| Reported as | | | | | | | | | | | | | | | | |

| Short-term investments | | $ | 12 | | | $ | 0 | | | $ | 6 | | | $ | 0 | |

| Other current assets | | | 149 | | | | 0 | | | | 245 | | | | 0 | |

| Other long-term assets | | | 19 | | | | 0 | | | | 16 | | | | 0 | |

| Other current liabilities | | | 0 | | | | (401 | ) | | | 0 | | | | (341 | ) |

| Other long-term liabilities | | | 0 | | | | (351 | ) | | | 0 | | | | (383 | ) |

| Total | | $ | 180 | | | $ | (752 | ) | | $ | 267 | | | $ | (724 | ) |

Gross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected to offset were $304 million and $800 million, respectively, as of June 30, 2024, and $442 million and $804 million, respectively, as of June 30, 2023.

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

| (In millions) | | Level 1 | | | | | Level 2 | | | Level 3 | | | | Total | | |

Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of June 30, [removed: 2024.][added: 2025.]

There were no changes in our internal control over financial reporting during the quarter ended June 30, [removed: 2024] [added: 2025] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Deloitte & Touche LLP has audited our internal control over financial reporting as of June 30, [removed: 2024;] [added: 2025;] their report is included in Item 9A.

Our assessment of, and conclusion on, the effectiveness of internal control over financial reporting did not include the internal controls of Activision Blizzard, Inc., acquired on October 13, 2023, which is included in our consolidated financial statements since the date of acquisition and represented less than 1% of our total assets as of June 30, 2024 after excluding goodwill and intangible assets acquired, and 2% of our total revenues for the year ended June 30, 2024.

We have audited the internal control over financial reporting of Microsoft Corporation and subsidiaries (the [removed: "Company")] [added: “Company”)] as of June 30, [removed: 2024,] [added: 2025,] based on criteria established in *Internal Control — Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, [removed: 2024,] [added: 2025,] based on criteria established in *Internal Control — Integrated Framework (2013)* issued by COSO.