{"artifacts": {"fy2023/evidence": {"year": 2023, "document": {"title": "Microsoft 2023 Annual Report", "url": "https://www.microsoft.com/investor/reports/ar23/index.html", "company": "Microsoft Corporation", "report_type": "annual", "period_end": "2023-06-30", "fiscal_year": 2023, "publication_date": null, "identity": "Microsoft 2023 Annual Report"}, "snapshot": {"url": "https://www.microsoft.com/investor/reports/ar23/index.html", "sha256": "5a136f3681efc2136e99ce39add47bc0ae21623b36924ef9e86c9436e8647b2f", "retrieved_at": "2026-10-01T08:22:30.526Z", "pages": [], "method": "HTML visible text; synthetic page 1", "total_pages": 1, "truncated": false, "chunks": 5}, "claims": [{"category": "reported_fact", "summary": "Microsoft reported record revenue of $211 billion in FY23.", "excerpt": "we delivered strong results in fiscal year 2023, including a record $211 billion in revenue and over $88 billion in operating income.", "page": 1, "section": "Management’s Discussion and Analysis", "target_date": null, "numeric_target": "211", "unit": "billion USD", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Over 11,000 organizations use Azure OpenAI Service.", "excerpt": "More than 11,000 organizations across industries are already using it for advanced scenarios like content and code generation.", "page": 1, "section": "Management’s Discussion and Analysis", "target_date": null, "numeric_target": "11000", "unit": "organizations", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "GitHub annual recurring revenue exceeded $1 billion in FY23.", "excerpt": "All up, GitHub surpassed $1 billion in annual recurring revenue for the first time this fiscal year.", "page": 1, "section": "Management’s Discussion and Analysis", "target_date": null, "numeric_target": "1", "unit": "billion USD", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Dynamics 365 revenue surpassed $5 billion in FY23.", "excerpt": "All up, Dynamics surpassed $5 billion in revenue over the past fiscal year, with our customer experience, service, and finance and supply chain businesses each surpassing $1 billion in annual sales.", "page": 1, "section": "Management’s Discussion and Analysis", "target_date": null, "numeric_target": "5", "unit": "billion USD", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Security business revenue surpassed $20 billion in FY23.", "excerpt": "All up, more than 1 million organizations now count on our comprehensive, AI-powered solutions to protect their digital estates, and our security business surpassed $20 billion in annual revenue, as we help protect customers across clouds and endpoint platforms.", "page": 1, "section": "Management’s Discussion and Analysis", "target_date": null, "numeric_target": "20", "unit": "billion USD", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Azure Arc has 18,000 customers.", "excerpt": "And we also continue to lead in hybrid computing with Azure Arc, which now has 18,000 customers.", "page": 1, "section": "Management’s Discussion and Analysis", "target_date": null, "numeric_target": "18000", "unit": "customers", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Teams monthly active users surpassed 300 million in FY23.", "excerpt": "All up, Teams usage surpassed 300 million monthly active users this year.", "page": 1, "section": "Management’s Discussion and Analysis", "target_date": null, "numeric_target": "300", "unit": "million monthly active users", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "measurable_promise", "summary": "Microsoft pledges to invest to accelerate its AI leadership across the tech stack.", "excerpt": "Second, because we know that maximum enterprise value gets created during platform shifts like this one, we will invest to accelerate our lead in AI by infusing this technology across every layer of the tech stack.", "page": 1, "section": "Management’s Discussion and Analysis", "target_date": null, "numeric_target": null, "unit": null, "attribution": "Satya Nadella", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Microsoft Cloud revenue increased 22% to $111.6 billion.", "excerpt": "Microsoft Cloud revenue increased 22% to $111.6 billion.", "page": 1, "section": "Highlights from fiscal year 2023 compared with fiscal year 2022", "target_date": null, "numeric_target": "22%", "unit": "percent", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Office Commercial products and cloud services revenue increased 10% driven by Office 365 Commercial growth of 13%.", "excerpt": "Office Commercial products and cloud services revenue increased 10% driven by Office 365 Commercial growth of 13%.", "page": 1, "section": "Highlights from fiscal year 2023 compared with fiscal year 2022", "target_date": null, "numeric_target": "10%", "unit": "percent", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Office Consumer products and cloud services revenue increased 2% and Microsoft 365 Consumer subscribers increased to 67.0 million.", "excerpt": "Office Consumer products and cloud services revenue increased 2% and Microsoft 365 Consumer subscribers increased to 67.0 million.", "page": 1, "section": "Highlights from fiscal year 2023 compared with fiscal year 2022", "target_date": null, "numeric_target": "67.0 million", "unit": "subscribers", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "LinkedIn revenue increased 10%.", "excerpt": "LinkedIn revenue increased 10%.", "page": 1, "section": "Highlights from fiscal year 2023 compared with fiscal year 2022", "target_date": null, "numeric_target": "10%", "unit": "percent", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Dynamics products and cloud services revenue increased 16% driven by Dynamics 365 growth of 24%.", "excerpt": "Dynamics products and cloud services revenue increased 16% driven by Dynamics 365 growth of 24%.", "page": 1, "section": "Highlights from fiscal year 2023 compared with fiscal year 2022", "target_date": null, "numeric_target": "16%", "unit": "percent", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Server products and cloud services revenue increased 19% driven by Azure and other cloud services growth of 29%.", "excerpt": "Server products and cloud services revenue increased 19% driven by Azure and other cloud services growth of 29%.", "page": 1, "section": "Highlights from fiscal year 2023 compared with fiscal year 2022", "target_date": null, "numeric_target": "19%", "unit": "percent", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "challenge", "summary": "Fluctuations in the U.S. dollar relative to certain foreign currencies reduced reported revenue and expenses from international operations in fiscal year 2023.", "excerpt": "Fluctuations in the U.S. dollar relative to certain foreign currencies reduced reported revenue and expenses from our international operations in fiscal year 2023.", "page": 1, "section": "Economic Conditions, Challenges, and Risks", "target_date": null, "numeric_target": null, "unit": null, "attribution": "Microsoft", "uncertainties": ["foreign exchange rate fluctuations"], "is_highlight": false}, {"category": "forecast", "summary": "Investments in cloud and AI infrastructure and devices will continue to increase operating costs and may decrease operating margins.", "excerpt": "The investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and may decrease our operating margins.", "page": 1, "section": "Economic Conditions, Challenges, and Risks", "target_date": null, "numeric_target": null, "unit": null, "attribution": "Microsoft", "uncertainties": ["future operating cost increases", "potential margin pressure"], "is_highlight": false}, {"category": "aspiration", "summary": "Continue to identify and evaluate opportunities to expand datacenter locations and increase server capacity to meet evolving customer demand, especially for AI services.", "excerpt": "We continue to identify and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services.", "page": 1, "section": "Economic Conditions, Challenges, and Risks", "target_date": null, "numeric_target": null, "unit": null, "attribution": "Microsoft", "uncertainties": ["availability of permitted and buildable land", "predictable energy", "networking supplies", "server and GPU supply"], "is_highlight": false}, {"category": "reported_fact", "summary": "On January 18, 2023, a $1.2 billion Q2 charge was recorded, including $800 million employee severance expenses, hardware portfolio impairment charges, and lease consolidation costs.", "excerpt": "On January 18, 2023, we announced decisions we made to align our cost structure with our revenue and customer demand, prioritize our investments in strategic areas, and consolidate office space. As a result, we recorded a $1.2 billion charge in the second quarter of fiscal year 2023 (“Q2 charge”), which included employee severance expenses of $800 million, impairment charges resulting from changes to our hardware portfolio, and costs related to lease consolidation activities.", "page": 1, "section": "Economic Conditions, Challenges, and Risks", "target_date": "2023-01-18", "numeric_target": "$1.2 billion", "unit": "currency", "attribution": "Microsoft", "uncertainties": [], "is_highlight": false}, {"category": "forecast", "summary": "Expectation of sufficient liquidity for at least next 12 months.", "excerpt": "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.", "page": 1, "section": "Liquidity and Capital Resources", "target_date": "next 12 months", "numeric_target": "12", "unit": "months", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "forecast", "summary": "Expect capital expenditures to increase in coming years.", "excerpt": "We expect capital expenditures to increase in coming years to support growth in our cloud offerings and our investments in AI infrastructure.", "page": 1, "section": "Liquidity and Capital Resources", "target_date": "coming years", "numeric_target": null, "unit": null, "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "measurable_promise", "summary": "Commitment to continue investing in sales, marketing, product support infrastructure, and technology.", "excerpt": "We will continue to invest in sales, marketing, product support infrastructure, and existing and advanced areas of technology, as well as acquisitions that align with our business strategy.", "page": 1, "section": "Other Planned Uses of Capital", "target_date": null, "numeric_target": null, "unit": null, "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "measurable_promise", "summary": "Commitment to continue additions to property and equipment including new facilities and datacenters.", "excerpt": "Additions to property and equipment will continue, including new facilities, datacenters, and computer systems for research and development, sales and marketing, support, and administrative staff.", "page": 1, "section": "Other Planned Uses of Capital", "target_date": null, "numeric_target": null, "unit": null, "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Transition tax paid $7.7B including $1.5B FY2023; remaining $10.5B payable over next three years with $2.7B due within 12 months.", "excerpt": "We have paid transition tax of $7.7 billion, which included $1.5 billion for fiscal year 2023. The remaining transition tax of $10.5 billion is payable over the next three years, with $2.7 billion payable within 12 months.", "page": 1, "section": "Material Cash Requirements and Other Obligations", "target_date": "within 12 months", "numeric_target": "2.7", "unit": "billion", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Cash tax paid $4.8B in FY2023 due to TCJA capitalization of R&D.", "excerpt": "In fiscal year 2023, we paid cash tax of $4.8 billion due to the mandatory capitalization for tax purposes of research and development expenditures enacted by the TCJA and effective on July 1, 2022.", "page": 1, "section": "Income Taxes", "target_date": null, "numeric_target": "4.8", "unit": "billion", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Repurchased 69M shares FY2023 for $18.4B; 95M shares FY2022 for $28.0B.", "excerpt": "During fiscal years 2023 and 2022, we repurchased 69 million shares and 95 million shares of our common stock for $18.4 billion and $28.0 billion, respectively, through our share repurchase programs.", "page": 1, "section": "Share Repurchases", "target_date": null, "numeric_target": "69", "unit": "million shares", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Declared quarterly dividends $0.68 per share FY2023 and $0.62 per share FY2022, totaling $20.2B and $18.6B.", "excerpt": "During fiscal year 2023 and 2022, our Board of Directors declared quarterly dividends of $0.68 per share and $0.62 per share, totaling $20.2 billion and $18.6 billion, respectively.", "page": 1, "section": "Dividends", "target_date": null, "numeric_target": "0.68", "unit": "$ per share", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "measurable_promise", "summary": "Commitment to close Activision Blizzard acquisition by October 18, 2023, valued at $68.7B.", "excerpt": "On January 18, 2022, we entered into a definitive agreement to acquire Activision Blizzard, Inc. (“Activision Blizzard”) for $95.00 per share in an all-cash transaction valued at $68.7 billion, inclusive of Activision Blizzard’s net cash. The acquisition has been approved by Activision Blizzard’s shareholders. We continue to work toward closing the transaction subject to obtaining required regulatory approvals and satisfaction of other customary closing conditions. Microsoft and Activision Blizzard have jointly agreed to extend the merger agreement through October 18, 2023 to allow for additional time to resolve remaining regulatory concerns.", "page": 1, "section": "Other Planned Uses of Capital", "target_date": "October 18, 2023", "numeric_target": "68.7", "unit": "billion", "attribution": "Microsoft Corporation", "uncertainties": ["subject to obtaining required regulatory approvals", "satisfaction of other customary closing conditions"], "is_highlight": true}, {"category": "measurable_promise", "summary": "Commitment to spend $13.5 billion on construction of new buildings, building improvements, and leasehold improvements primarily for datacenters.", "excerpt": "As of June 30, 2023, we have committed $13.5 billion for the construction of new buildings, building improvements, and leasehold improvements, primarily related to datacenters.", "page": 1, "section": "Note 7 – Property and Equipment", "target_date": null, "numeric_target": "13.5", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Depreciation expense was $11.0 billion in FY23, $12.6 billion in FY22, and $9.3 billion in FY21.", "excerpt": "During fiscal years 2023, 2022, and 2021, depreciation expense was $11.0 billion, $12.6 billion, and $9.3 billion, respectively.", "page": 1, "section": "Note 7 – Property and Equipment", "target_date": null, "numeric_target": "11.0", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Cash paid for interest on debt was $1.7 billion in FY23, $1.9 billion in FY22, and $2.0 billion in FY21.", "excerpt": "Cash paid for interest on our debt for fiscal years 2023, 2022, and 2021 was $1.7 billion, $1.9 billion, and $2.0 billion, respectively.", "page": 1, "section": "Note 11 – Debt", "target_date": null, "numeric_target": "1.7", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Income taxes paid, net of refunds, were $23.1 billion in FY23, $16.0 billion in FY22, and $13.4 billion in FY21.", "excerpt": "Income taxes paid, net of refunds, were $23.1 billion, $16.0 billion, and $13.4 billion in fiscal years 2023, 2022, and 2021, respectively.", "page": 1, "section": "Note 12 – Income Taxes", "target_date": null, "numeric_target": "23.1", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Estimated fair value of long-term debt including current portion was $46.2 billion as of June 30,2023 and $50.9 billion as of June 30,2022.", "excerpt": "As of June 30, 2023 and 2022, the estimated fair value of long-term debt, including the current portion, was $46.2 billion and $50.9 billion, respectively.", "page": 1, "section": "Note 11 – Debt", "target_date": null, "numeric_target": "46.2", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "forecast", "summary": "Expect to recognize approximately 45% of unearned revenue over the next 12 months.", "excerpt": "We expect to recognize approximately 45% of this revenue over the next 12 months and the remainder thereafter.", "page": 1, "section": "Note 13 – Unearned Revenue", "target_date": "within 12 months", "numeric_target": "45", "unit": "%", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Federal, state, and foreign net operating loss carryforwards were $509 million, $1.2 billion, and $2.3 billion respectively as of June 30,2023.", "excerpt": "As of June 30, 2023, we had federal, state, and foreign net operating loss carryforwards of $509 million, $1.2 billion, and $2.3 billion, respectively.", "page": 1, "section": "Note 12 – Income Taxes", "target_date": null, "numeric_target": "2.3", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Federal capital loss carryforwards from Nuance acquisition were $456 million as of June 30,2023.", "excerpt": "As of June 30, 2023, we had $456 million federal capital loss carryforwards for U.S. tax purposes from our acquisition of Nuance.", "page": 1, "section": "Note 12 – Income Taxes", "target_date": null, "numeric_target": "456", "unit": "million USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "challenge", "summary": "Primary unresolved IRS audit issues relate to transfer pricing, which could have a material impact on consolidated financial statements when resolved.", "excerpt": "As of June 30, 2023, the primary unresolved issues for the IRS audits relate to transfer pricing, which could have a material impact in our consolidated financial statements when the matters are resolved.", "page": 1, "section": "Note 12 – Income Taxes", "target_date": null, "numeric_target": null, "unit": null, "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "challenge", "summary": "Accrued legal liabilities of $617 million with possible additional losses up to $600 million.", "excerpt": "30, 2023, we accrued aggregate legal liabilities of $617 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $600 million in aggregate beyond recorded amounts are reasonably possible.", "page": 1, "section": "Legal Liabilities", "target_date": null, "numeric_target": "$617 million", "unit": "USD", "attribution": "Microsoft Corporation", "uncertainties": ["adverse outcomes that we estimate could reach approximately $600 million in aggregate beyond recorded amounts are reasonably possible"], "is_highlight": true}, {"category": "measurable_promise", "summary": "Board authorized $60.0 billion share repurchase program with $22.3 billion remaining as of June 30, 2023.", "excerpt": "On September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $60.0 billion in share repurchases. This share repurchase program commenced in November 2021, following completion of the program approved on September 18, 2019, has no expiration date, and may be terminated at any time. As of June 30, 2023, $22.3 billion remained of this $60.0 billion share repurchase program.", "page": 1, "section": "Share Repurchases", "target_date": null, "numeric_target": "$60.0 billion", "unit": "USD", "attribution": "Microsoft Board of Directors", "uncertainties": ["program has no expiration date, and may be terminated at any time"], "is_highlight": true}, {"category": "reported_fact", "summary": "As of June 30, 2023, total unrecognized compensation costs related to stock awards were $18.6 billion.", "excerpt": "As of June 30, 2023, total unrecognized compensation costs related to stock awards were $18.6 billion.", "page": 1, "section": "Employee Stock and Savings Plans", "target_date": null, "numeric_target": "$18.6 billion", "unit": "USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Intelligent Cloud revenue for fiscal year 2023 was $87,907 million.", "excerpt": "Intelligent Cloud\n87,907", "page": 1, "section": "Segment Information and Geographic Data", "target_date": null, "numeric_target": "$87,907 million", "unit": "USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Microsoft Cloud revenue was $111.6 billion in fiscal year 2023.", "excerpt": "Our Microsoft Cloud revenue, which includes Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties, was $111.6 billion, $91.4 billion, and $69.1 billion in fiscal years 2023, 2022, and 2021, respectively.", "page": 1, "section": "Microsoft Cloud revenue", "target_date": null, "numeric_target": "$111.6 billion", "unit": "USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}], "gaps": ["1 claims had unsupported quotations or page numbers and were rejected.", "1 claims had unsupported quotations or page numbers and were rejected.", "2 claims had unsupported quotations or page numbers and were rejected."], "extractedChunks": 5, "totalChunks": 5}, "fy2023/source": {"url": "https://www.microsoft.com/investor/reports/ar23/index.html", "sha256": "5a136f3681efc2136e99ce39add47bc0ae21623b36924ef9e86c9436e8647b2f", "retrieved_at": "2026-10-01T08:22:30.526Z", "pages": [{"page": 1, "text": "\n\nMicrosoft 2023 Annual Report\n\nMicrosoft\n\nAnnual Report 2023\n\nAnnual Report 2023\nContinue to Shareholder Letter\n\nSatya Nadella\n\nChief Executive Officer\n\nDear shareholders, colleagues, customers, and partners:\n\nWe are living through a time of historic challenge and opportunity. As I write this, the world faces ongoing economic, social, and geopolitical volatility. At the same time, we have entered a new age of AI that will fundamentally transform productivity for every individual, organization, and industry on earth, and help us address some of our most pressing challenges.\n\nThis next generation of AI will reshape every software category and every business, including our own. Forty-eight years after its founding, Microsoft remains a consequential company because time and time again—from PC/Server, to Web/Internet, to Cloud/Mobile—we have adapted to technological paradigm shifts. Today, we are doing so once again, as we lead this new era.\n\nAmid this transformation, our mission to empower every person and every organization on the planet to achieve more remains constant. 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, while mitigating its risks.\n\nHere are just a few examples of how we are already doing this:\n\n \nLeading electronic health records vendor Epic is addressing some of the biggest challenges facing the healthcare industry today—including physician burnout—by deploying a wide range of copilot solutions built on Azure OpenAI Service and Dragon Ambient eXperience Copilot.\n\nMercado Libre is reducing the time its developers spend writing code by more than 50 percent with GitHub Copilot, as the company works to democratize e-commerce across Latin America.\n\nMercedes-Benz is making its in-car voice assistant more intuitive for hundreds of thousands of drivers using ChatGPT via the Azure OpenAI Service.\n\nLumen Technologies is helping its employees be more productive, enabling them to focus on higher value-added activities, by deploying Microsoft 365 Copilot.\n\nNonprofit The Contingent is matching foster families with children in need using Dynamics 365, Power BI, and Azure, with an eye on using AI to amplify its work across the US.\n\nAnd, Taiwan’s Ministry of Education has built an online platform to help elementary and high school students learn English using Azure AI.\n\nTo build on this progress, we remain convicted on three things: First, we will maintain our lead as the top commercial cloud while innovating in consumer categories, from gaming to professional social networks. Second, because we know that maximum enterprise value gets created during platform shifts like this one, we will invest to accelerate our lead in AI by infusing this technology across every layer of the tech stack. And, finally, we will continue to drive operating leverage, aligning our cost structure with our revenue growth.\n\nAs we make progress on these priorities, we delivered strong results in fiscal year 2023, including a record $211 billion in revenue and over $88 billion in operating income.\n\nA NEW ERA OF AI\n\nThere are two breakthroughs coming together to define this new era of AI. The first is the most universal interface: natural language. The long arc of computing has, in many ways, been shaped by the pursuit of increasingly intuitive human-computer interfaces—keyboards, mice, touch screens. We believe we have now arrived at the next big step forward—natural language—and will quickly go beyond, to see, hear, interpret, and make sense of our intent and the world around us.\n\nThe second is the emergence of a powerful new reasoning engine. For years, we’ve digitized daily life, places, and things and organized them into databases. But in a world rich with data, what has been most scarce is our ability to reason over it. This generation of AI helps us interact with data in powerful new ways—from completing or summarizing text, to detecting anomalies and recognizing images—to help us identify patterns and surface insights faster than ever.\n\nTogether, these two breakthroughs will unlock massive new opportunity. And, in fact, just last month we announced our vision for Copilot, an everyday AI companion. We are building Copilot into all our most used products and experiences and allowing people to summon its power as a standalone app as well. Just like you boot up an OS to access applications or use a browser to visit websites today, our belief is that you will invoke a Copilot to do all those activities and more: to shop, to code, to analyze, to learn, to create.\n\nAs a company, any time we approach a transition like this, we do so responsibly. We believe AI should be as empowering across communities as it is powerful, and we’re committed to ensuring it is responsibly built and designed, with safety in mind from the outset.\n\nOUR OPPORTUNITY\n\nEvery customer solution area and every layer of our tech stack will be reimagined for the AI era. And that’s exactly what we’ve already begun to do:\n\nInfrastructure\n\nFour years ago, we first invested in our AI supercomputer, with a goal of building the best cloud for training and inference. Today, it’s being used by our partner OpenAI to power its best-in-class foundation models and services, including one of the fastest-growing consumer apps ever—ChatGPT. NVIDIA, as well as leading AI startups like Adept and Inflection, is also using our infrastructure to build its own breakthrough models.\n\nMore broadly, organizations continue to choose our ubiquitous computing fabric—from cloud to edge—to run their mission-critical applications. We continued to see more cloud migrations to Azure this past fiscal year, as it remains early when it comes to the long-term cloud opportunity. And we also continue to lead in hybrid computing with Azure Arc, which now has 18,000 customers.\n\nData and AI\n\nEvery AI app starts with data, and having a comprehensive data and analytics platform is more important than ever. Our Intelligent Data Platform brings together operational databases, analytics, and governance so organizations can spend more time creating value and less time integrating their data estate. We also introduced Microsoft Fabric this year, which unifies compute, storage, and governance with a disruptive business model.\n\nWith Azure AI, we are making foundation models available as platforms to our customers. We offer the best selection of industry-leading frontier and open models. In January, we made the Azure OpenAI Service broadly available, bringing together advanced models, including ChatGPT and GPT-4, with the enterprise capabilities of Azure. More than 11,000 organizations across industries are already using it for advanced scenarios like content and code generation. Meta chose us this summer as its preferred cloud to commercialize its Llama family of models. And, with Azure AI Studio, we provide 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.\n\nDigital and app innovation\n\nGitHub Copilot is fundamentally transforming developer productivity, helping developers complete coding tasks 55 percent faster. More than 27,000 organizations have chosen GitHub Copilot for Business, and to date more than 1 million people have used GitHub Copilot to code faster. We also announced our vision for the future of software development with GitHub Copilot X, which will bring the power of AI throughout the entire software development lifecycle. All up, GitHub surpassed $1 billion in annual recurring revenue for the first time this fiscal year.\n\nWe’re also applying AI across our low-code/no-code toolchain to help domain experts across an organization automate workflows, create apps and webpages, build virtual agents, or analyze data, using just natural language with copilots in Power Platform. More than 63,000 organizations have used AI-powered capabilities in Power Platform to date.\n\nBusiness applications \n\nWe are bringing the next generation of AI to employees across every job function and every line of business with Dynamics 365 Copilot, which works across CRM and ERP systems to reduce burdensome tasks like manual data entry, content generation, and notetaking. In fact, our own support agents are using Copilot in Dynamics 365 Customer Service to resolve more cases faster and without having to call on peers to help. With our Supply Chain Platform, we’re helping customers apply AI to predict and mitigate disruptions. And, with our new Microsoft Sales Copilot, sellers can infuse their customer interactions with data from CRM systems—including both Salesforce and Dynamics—to close more deals.\n\nAll up, Dynamics surpassed $5 billion in revenue over the past fiscal year, with our customer experience, service, and finance and supply chain businesses each surpassing $1 billion in annual sales.\n\nIndustry \n\nAcross industries, we are rapidly becoming the partner of choice for any organization looking to generate real value from AI. In healthcare, for example, we introduced the world’s first fully automated clinical documentation application, DAX Copilot. The application helps physicians reduce documentation time by half, freeing them to spend more time face to face with patients. And Epic will integrate it directly into its electronic health records system.\n\nAnd, in retail, we introduced new tools to help companies manage their day-to-day operations and digitize their physical stores.\n\nModern work\n\nWe are rapidly evolving Microsoft 365 into an AI-first platform that enables every individual to amplify their creativity and productivity, with both our established applications like Office and Teams, as well as new apps like Designer, Stream, and Loop. Microsoft 365 is designed for today’s digitally connected, distributed workforce.\n\nThis year, we also introduced a new pillar of customer value with Microsoft 365 Copilot, which combines next-generation AI with business data in the Microsoft Graph and Microsoft 365 applications to help people be more productive and unleash their creativity at work. Just last month, I was excited to announce that we will make Microsoft 365 Copilot generally available to our commercial customers later this year.\n\nWe continue to build momentum in Microsoft Teams across collaboration, chat, meetings, and calls. We introduced a new version of Teams that delivers up to two times faster performance, while using 50 percent less memory. We also introduced Teams Premium to meet enterprise demand for AI-powered features like intelligent meeting recaps. All up, Teams usage surpassed 300 million monthly active users this year.\n\nWith Microsoft Viva, we have created a new category for employee experience. Copilot in Viva offers leaders a new way to build high-performance teams by prioritizing both productivity and employee engagement. This year, Viva surpassed 35 million monthly active users.\n\nSecurity\n\nAs the rate and pace of cyberthreats continue to accelerate, security is a top priority for every organization. Our comprehensive, AI-powered solutions give defenders the advantage. With Security Copilot, we’re combining large language models with a domain-specific model informed by our threat intelligence and 65 trillion daily security signals, to transform every aspect of security operations center productivity.\n\nAll up, more than 1 million organizations now count on our comprehensive, AI-powered solutions to protect their digital estates, and our security business surpassed $20 billion in annual revenue, as we help protect customers across clouds and endpoint platforms. \n\nSearch, advertising, and news\n\nWe are reshaping daily search and web habits with our new Bing and Microsoft Edge browser, which brings together search, browsing, chat, and AI into one unified experience to deliver better search, more complete answers, a new chat experience, and the ability to generate content. We think of these tools as an AI copilot for the web.\n\nWe are also bringing these breakthrough capabilities to businesses, with Bing Chat Enterprise, which offers commercial data protection, providing an easy on-ramp for any organization looking to get the benefit of next-generation AI today.\n\nAlthough it’s early in our journey, Bing users engaged in more than 1 billion chats and created more than 750 million images over the past year as they apply these new tools to get things done. And Edge has taken share for nine consecutive quarters.\n\nMore broadly, we continue to expand our opportunity in advertising. This year, Netflix chose us as its exclusive technology and sales partner for its first ad-supported subscription offering, a validation of the differentiated value we provide to any publisher looking for a flexible partner to build and innovate with them.\n\nLinkedIn\n\nThe excitement around AI is creating new opportunities across every function—from marketing, sales, service, and finance, to software development and security. And LinkedIn is increasingly where people are going to learn, discuss, and uplevel their skills. We are using AI to help our members and customers connect to opportunities and tap into the experiences of experts on the platform. In fact, our AI-powered articles are already the fastest-growing traffic driver to the network.\n\nAll up, LinkedIn’s revenue surpassed $15 billion for the first time this fiscal year, a testament to how mission critical the platform has become to help more than 950 million members connect, learn, sell, and get hired.\n\nGaming\n\nIn gaming, we are rapidly executing on our ambition to be the first choice for people to play great games whenever, wherever, and however they want. With Xbox Game Pass, we are redefining how games are distributed, played, and viewed. Content is the flywheel behind the service’s growth, and our pipeline has never been stronger. It was especially energizing to release Starfield this fall to broad acclaim, with more than 10 million players in the first month post-launch alone.\n\nEarlier this month, we were thrilled to close our acquisition of Activision Blizzard, and we look forward to sharing more in the coming months about how, together , we will bring the joy of gaming to more people around the world.\n\nDevices and creativity\n\nFinally, we’re turning Windows into a powerful new AI canvas with Copilot, which rolled out as part of a Windows 11 update last month. It uniquely incorporates the context and intelligence of the web, your work data, and what you are doing in the moment on your PC to provide better assistance, while keeping your privacy and security at the forefront. Overall, the number of devices running Windows 11 more than doubled in the past year. And we are also transforming how Windows is experienced and managed with Azure Virtual Desktop and Windows 365, which together surpassed $1 billion in annual revenue for the first time.\n\nOUR RESPONSIBILITY\n\nAs we pursue our opportunity, we are also working to ensure technology helps us solve problems—not create new ones. To do this, we focus on four enduring commitments that are central to our mission and that take on even greater importance in this new era. For us, these commitments are more than just words. They’re a guide to help us make decisions across everything we do—as we design and develop products, shape business processes and policies, help our customers thrive, build partnerships, and more —always asking ourselves critical questions to ensure our actions are aligned with them.\n\nHow can we expand opportunity?\n\nFirst, we believe access to economic growth and opportunity should reach every person, organization, community, and country. And although AI can serve as a catalyst for opportunity and growth, we must first ensure everyone has access to the technologies, data, and skills they need to benefit.\n\nTo achieve this, we are focused on getting technology into the hands of nonprofits, social entrepreneurs, and other civil society organizations to help them digitally transform, so they can help address some of society’s biggest challenges. This year, we provided nonprofits with over $3.8 billion in discounted and donated technology. Nearly 325,000 nonprofits used our cloud. And to help them tap the potential of AI, we’re building new AI capabilities for fundraising, marketing, and program delivery.\n\nAI will displace some jobs, but it will also create new ones. That’s why we aim to train and certify 10 million people by 2025 with the skills for jobs and livelihoods in an increasingly digital economy. Since July 2020, we’ve helped 8.5 million people, including 2.7 million this year. We’ve also focused on skilling women and underrepresented communities in cybersecurity, working across 28 countries and with nearly 400 US community colleges to scale our efforts.\n\nFinally, to help people learn more about AI, we launched the first online Professional Certificate on Generative AI in partnership with LinkedIn Learning, created AI tools for educators, and held our first AI Community Learning event in the US. These events will be replicated around the world and localized in 10 languages over the next year. We also partnered to launch a Generative AI Skills Grant Challenge to explore how nonprofit, social enterprise, and research or academic institutions can empower the workforce to use this new generation of AI.\n\nHow can we earn trust?\n\nTo create positive impact with technology, people need to be able to trust the technologies they use and the companies behind them. For us, earning trust spans the responsible use of AI, protecting privacy, and advancing digital safety and cybersecurity. \n\nOur commitment to responsible AI is not new. Since 2017, we’ve worked to develop our responsible AI practice, recognizing that trust is never given but earned through action.\n\nWe have translated our AI principles into a core set of implementation processes, as well as tools, training, and practices to support compliance. But internal programs aren’t enough. We also enable our customers and partners to develop and deploy AI safely, including through our AI customer commitments and services like Azure AI Studio, with its content safety tooling and access to our Responsible AI dashboard.\n\nBuilding AI responsibly requires that we work with other industry leaders, civil society, and governments to advocate for AI regulations and governance globally. This year, we released our Governing AI Blueprint, which outlines concrete legal and policy recommendations for AI guardrails. We are signatories to the eight voluntary commitments developed with the US White House, and proud of the six additional commitments we’ve made to further strengthen and operationalize the principles of safety, security, and trust.\n\nThe era of AI heightens the importance of cybersecurity, and we deepened our work across the private and public sectors to improve cyber-resilience. We’ve continued to support Ukraine in defending critical infrastructure, detecting and disrupting cyberattacks and cyberinfluence operations, and providing intelligence related to these attacks. Our Microsoft Threat Analysis Center team produced more than 500 intelligence reports to help keep customers and the public informed. And we published our third annual Microsoft Digital Defense Report, sharing our learnings and security recommendations.\n\nWe also remain committed to creating safe experiences online and protecting customers from illegal and harmful content and conduct, while respecting human rights. We supported the Christchurch Call Initiative on Algorithmic Outcomes to address terrorist and violent and extremist content online. And through the World Economic Forum’s Global Coalition for Digital Safety, we co-led the development of new global principles for digital safety.\n\nProtecting customers’ privacy and giving them control of their data is more important than ever. We’ve begun our phased rollout of the EU Data Boundary, supporting our commercial and public sector customers’ need for data sovereignty. And each month, more than 3 million people exercise their data protection rights through our privacy dashboard, making meaningful choices about how their data is used.\n\nHow can we protect fundamental rights?\n\nIn an increasingly digital world, we have a responsibility to promote and protect people’s fundamental rights and address the challenges technology creates. For us, this means upholding responsible business practices, expanding connectivity and accessibility, advancing fair and inclusive societies, and empowering communities.\n\nIn 2023, we worked diligently to anticipate harmful uses of our technology and put guardrails on the use of technologies that are consequential to people’s lives or legal status, create risk of harm, or threaten human rights. We will continue to assess the impact of our technologies, engage our stakeholders, and model and adopt responsible practices and respect for human rights—including across our global supply chain.\n\nToday, our lives are more connected than ever. Access to education, employment, healthcare, and other critical services is increasingly dependent on technology. That’s why we’ve expanded our commitment to bring access to affordable high-speed internet to a quarter of a billion people around the world, including 100 million people in Africa, by the end of 2025. Since 2017, we’ve helped bring internet access to 63 million people, a key first step to ensuring communities will have access to AI and other digital technologies.\n\nThis year, we also continued working toward our five-year commitment to bridge the disability divide with a focus on helping close the accessibility knowledge gap. Seven hundred and fifty-thousand learners enriched their understanding of disability and accessibility in partnership with LinkedIn Learning, Teach Access, and the Microsoft disability community.\n\nIn addition, we’re stepping up efforts to combat online disinformation through new media content provenance technologies—enabling users to verify if an image or video was generated by AI. We continued our efforts to promote racial equity across Microsoft, our ecosystem, and our communities, including our work to advance justice reform through data-driven insights. And we provided support in response to eight humanitarian disasters, including committing $540 million of support to those who have been impacted by the War in Ukraine.\n\nFinally, recognizing AI’s potential to advance human rights and humanitarian action, we worked on several AI for Humanitarian Action projects. Together with our partners, we’re building the capabilities to identify at-risk communities, estimate seasonal hunger, predict malnutrition, and assist in disease identification.\n\nHow can we advance sustainability?\n\nClimate change is the defining issue of our generation, and addressing it requires swift, collective action and technological innovation. We are committed to meeting our own goals while enabling others to do the same. That means taking responsibility for our operational footprint and accelerating progress through technology.\n\nWe continue to see extreme weather impacting communities globally. To meet the urgent need, this must be a decade of innovation and decisive action—for Microsoft, our customers, and the world.\n\nIn our latest Environmental Sustainability Report, we shared our progress toward our 2030 sustainability targets across carbon, water, waste, and ecosystems. In 2022, our overall carbon emissions declined by 0.5 percent while our business grew. Addressing scope 3 emissions, which account for the vast majority of our emissions, is arguably our ultimate challenge—one we’ll continue to tackle through our supply chain, policy advances, and industry-wide knowledge-sharing.\n\nWe’ve provided just under 1 million people with access to clean water and sanitation, one of five pillars on our path to becoming water positive. And in our pursuit to be zero waste, we achieved a reuse and recycle rate of 82 percent for all our cloud hardware and diverted over 12,000 metric tons of solid operational waste from landfills and incinerators.\n\nWe also continue to take responsibility for the impacts of our direct operations on Earth’s ecosystems. We’ve contracted to protect 17,268 acres of land, over 50 percent more than the land we use to operate. Of that, 12,270 acres—the equivalent of approximately 7,000 soccer fields—were designated as permanently protected.\n\nTechnology is a powerful lever to help us avoid the most severe impacts of climate change. That’s why we’re accelerating our investment in more efficient datacenters, clean energy, enhancements to the Microsoft Cloud for Sustainability and Planetary Computer, and green software practices. To date, through our Climate Innovation Fund, we’ve allocated more than $700 million to a global portfolio of 50+ investments spanning sustainable solutions in energy, industrial, and natural systems.\n\nFinally, we believe AI can be a powerful accelerant in addressing the climate crisis. We expanded our AI for Good Lab in Egypt and Kenya to improve climate resilience for the continent. And, together with our partners, we launched Global Renewables Watch, a first-of-its-kind living atlas that aims to map and measure utility-scale solar and wind installations, allowing users to evaluate progress toward a clean energy transition.\n\nAlthough this new era promises great opportunity, it demands even greater responsibility from companies like ours. As we pursue our four commitments, we focus on transparency—providing clear reporting on how we run our business and how we work with customers and partners. Our annual Impact Summary shares more about our progress and learnings this year, and our Reports Hub provides detailed reports on our environmental data, political activities, workforce demographics, human rights work, and more.\n\nOUR CULTURE\n\nThere’s never been a more important time to live our culture. The way we work and the speed at which we work are changing.\n\nIn an economy where yesterday’s exceptional is today’s expected, all of us at Microsoft will need to embrace a growth mindset and, more importantly, confront our fixed mindsets as our culture evolves. It will take everyday courage to reformulate what innovation, business models, and sales motions look like in this new era. As a high-performance organization, we aspire to help our employees maximize their economic opportunity, while simultaneously helping them learn and grow professionally and connect their own passion and purpose with their everyday work and the company’s mission.\n\nTo be successful, we need to be grounded in what our customers and the world need. We need to innovate and collaborate as One Microsoft. And we need to actively seek diversity and embrace inclusion to best serve our customers and create a culture where everyone can do their best work. To empower the world, we need to represent the world. To that end, we remain focused on increasing representation and strengthening our culture of inclusion. Even as we navigated challenges this year, our company continued to be the most globally diverse it’s ever been.\n\nGiving also remains core to our culture. This year, more than 105,000 employees gave $242 million (including company match) to over 35,000 nonprofits in 116 countries. And our employees volunteered over 930,000 hours to causes they care about.\n\nI am deeply grateful to our employees for their commitment to the company and their communities, and how they are living our mission and culture every day in a changing company and world.\n\n**\n\nIn closing, this is Microsoft’s moment. We have an incredible opportunity to use this new era of AI to deliver meaningful benefits for every person and every organization on the planet.\n\nOn New Year’s Day, I saw a tweet from Andrej Karpathy, Tesla’s former director of AI who now works at OpenAI, about how GitHub Copilot was writing about 80 percent of his code, with 80 percent accuracy. Two days later, I saw a stunning example of work we’ve done with the government of India’s Ministry of Electronics and IT, which is applying an AI model so farmers in rural areas can interact with government resources in their native languages.\n\nThink about that: A foundation model that was developed on the West Coast of the United States is already transforming the lives of both elite developers and rural farmers on the other side of the globe. We’ve not seen this speed of diffusion and breadth of impact in the tech industry before.\n\nAs a company, this is our moment to show up and responsibly build solutions that drive economic growth and benefit every community, country, industry, and person. If we do it well, the world will do well, and Microsoft will do well too. I’ve never been more confident that we will deliver on this promise together in the days, months, and years to come.\n\n Satya Nadella\n\n Chairman and Chief Executive Officer\n\n October 16, 2023\n\nFinancial Review\n\nISSUER PURCHASES OF EQUITY SECURITIES, DIVIDENDS, AND STOCK PERFORMANCE\n\nMARKET AND STOCKHOLDERS\n\nOur common stock is traded on the NASDAQ Stock Market under the symbol MSFT. On July 24, 2023, there were 83,883 registered holders of record of our common stock.\n\nSHARE REPURCHASES AND DIVIDENDS\n\nShare Repurchases\n\nOn September 18, 2019, our Board of Directors approved a share repurchase program authorizing up to $40.0 billion in share repurchases. This share repurchase program commenced in February 2020 and was completed in November 2021.\n\nOn September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $60.0 billion in share repurchases. This share repurchase program commenced in November 2021, following completion of the program approved on September 18, 2019, has no expiration date, and may be terminated at any time. As of June 30, 2023, $22.3 billion remained of this $60.0 billion share repurchase program.\n\nWe repurchased the following shares of common stock under the share repurchase programs:\n\n(In millions)\nShares\n\nAmount\n\nShares\n\nAmount\n\nShares\n\nAmount\n\nYear Ended June 30,\n\n2023\n\n2022\n\n2021\n\nFirst Quarter\n17\n\n$ 4,600\n\n21\n\n$ 6,200\n\n25\n\n$ 5,270\n\nSecond Quarter\n20\n\n4,600\n\n20\n\n6,233\n\n27\n\n5,750\n\nThird Quarter\n18\n\n4,600\n\n26\n\n7,800\n\n25\n\n5,750\n\nFourth Quarter\n14\n\n4,600\n\n28\n\n7,800\n\n24\n\n6,200\n\nTotal\n69\n\n$ 18,400\n\n95\n\n$ 28,033\n\n101\n\n$ 22,970\n\nAll repurchases were made using cash resources. Shares repurchased during fiscal year 2023 and the fourth and third quarters of fiscal year 2022 were under the share repurchase program approved on September 14, 2021. Shares repurchased during the second quarter of fiscal year 2022 were under the share repurchase programs approved on both September 14, 2021 and September 18, 2019. All other shares repurchased were under the share repurchase program approved on September 18, 2019. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $3.8 billion, $4.7 billion, and $4.4 billion for fiscal years 2023, 2022, and 2021, respectively.\n\nDividends\n\nOur Board of Directors declared the following dividends:\n\nDeclaration Date\nRecord Date\nPayment Date\n\nDividend\n\nPer Share\n\nAmount\n\nFiscal Year 2023\n\n(In millions)\n\nSeptember 20, 2022\nNovember 17, 2022\nDecember 8, 2022\n\n$ 0.68\n\n$ 5,066\n\nNovember 29, 2022\nFebruary 16, 2023\nMarch 9, 2023\n\n0.68\n\n5,059\n\nMarch 14, 2023\nMay 18, 2023\nJune 8, 2023\n\n0.68\n\n5,054\n\nJune 13, 2023\nAugust 17, 2023\nSeptember 14, 2023\n\n0.68\n\n5,054\n\nTotal\n\n$ 2.72\n\n$ 20,233\n\nFiscal Year 2022\n\nSeptember 14, 2021\nNovember 18, 2021\nDecember 9, 2021\n\n$ 0.62\n\n$ 4,652\n\nDecember 7, 2021\nFebruary 17, 2022\nMarch 10, 2022\n\n0.62\n\n4,645\n\nMarch 14, 2022\nMay 19, 2022\nJune 9, 2022\n\n0.62\n\n4,632\n\nJune 14, 2022\nAugust 18, 2022\nSeptember 8, 2022\n\n0.62\n\n4,621\n\nTotal\n\n$ 2.48\n\n$ 18,550\n\nThe dividend declared on June 13, 2023 was included in other current liabilities as of June 30, 2023.\n\nSTOCK PERFORMANCE\n\nCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*\n\nAmong Microsoft Corporation, the S&P 500 Index and the NASDAQ Computer Index\n\n6/18\n\n6/19\n\n6/20\n\n6/21\n\n6/22\n\n6/23\n\nMicrosoft Corporation\n100.00\n\n138.07\n\n212.34\n\n285.40\n\n272.82\n\n365.24\n\nS&P 500\n100.00\n\n110.42\n\n118.70\n\n167.13\n\n149.39\n\n178.66\n\nNASDAQ Computer\n100.00\n\n106.10\n\n156.93\n\n236.08\n\n184.53\n\n242.82\n\n$100 invested on 6/30/18 in stock or index, including reinvestment of dividends. Fiscal year ending June 30.\n\nBusiness\n\nNote About Forward-Looking Statements\n\nThis report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following sections: “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures about Market Risk” in our fiscal year 2023 Form 10-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.\n\nGeneral\n\nEmbracing Our Future\n\nMicrosoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more. We strive to create local opportunity, growth, and impact in every country around the world. We are creating the platforms and tools, powered by artificial intelligence (“AI”), that deliver better, faster, and more effective solutions to support small and large business competitiveness, improve educational and health outcomes, grow public-sector efficiency, and empower human ingenuity. From infrastructure and data, to business applications and collaboration, we provide unique, differentiated value to customers.\n\nIn a world of increasing economic complexity, AI has the power to revolutionize many types of work. Microsoft is now innovating and expanding our portfolio with AI capabilities to help people and organizations overcome today’s challenges and emerge stronger. Customers are looking to unlock value from their digital spend and innovate for this next generation of AI, while simplifying security and management. Those leveraging the Microsoft Cloud are best positioned to take advantage of technological advancements and drive innovation. Our investment in AI spans the entire company, from Microsoft Teams and Outlook, to Bing and Xbox, and we are infusing generative AI capability into our consumer and commercial offerings to deliver copilot capability for all services across the Microsoft Cloud.\n\nWe’re committed to making the promise of AI real – and doing it responsibly. Our work is guided by a core set of principles: fairness, reliability and safety, privacy and security, inclusiveness, transparency, and accountability.\n\nWhat We Offer\n\nFounded in 1975, we develop and support software, services, devices, and solutions that deliver new value for customers and help people and businesses realize their full potential.\n\nWe offer an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and we provide solution support and consulting services. We also deliver relevant online advertising to a global audience.\n\nOur products include operating systems, cross-device productivity and collaboration applications, server applications, business solution applications, desktop and server management tools, software development tools, and video games. We also design and sell devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.\n\nThe Ambitions That Drive Us\n\nTo achieve our vision, our research and development efforts focus on three interconnected ambitions:\n\nReinvent productivity and business processes.\n\nBuild the intelligent cloud and intelligent edge platform.\n\nCreate more personal computing.\n\nReinvent Productivity and Business Processes\n\nAt 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.\n\nOur growth depends on securely delivering continuous innovation and advancing our leading productivity and collaboration tools and services, including Office 365, Dynamics 365, and LinkedIn. Microsoft 365 brings together Office 365, Windows, and Enterprise Mobility + Security to help organizations empower their employees with AI-backed tools that unlock creativity, increase collaboration, and fuel innovation, all the while enabling compliance coverage and data protection. Microsoft Teams is a comprehensive platform for work, with meetings, calls, chat, collaboration, and business process automation. Microsoft Viva is an employee experience platform that brings together communications, knowledge, learning, resources, and insights. Microsoft 365 Copilot combines next-generation AI with business data in the Microsoft Graph and Microsoft 365 applications.\n\nTogether with the Microsoft Cloud, Dynamics 365, Microsoft Teams, and our AI offerings bring a new era of collaborative applications that optimize business functions, processes, and applications to better serve customers and employees while creating more business value. Microsoft Power Platform is helping domain experts drive productivity gains with low-code/no-code tools, robotic process automation, virtual agents, and business intelligence. In a dynamic labor market, LinkedIn is helping professionals use the platform to connect, learn, grow, and get hired.\n\nBuild the Intelligent Cloud and Intelligent Edge Platform\n\nAs digital transformation and adoption of AI accelerates and revolutionizes more business workstreams, organizations in every sector across the globe can address challenges that will have a fundamental impact on their success. For enterprises, digital technology empowers employees, optimizes operations, engages customers, and in some cases, changes the very core of products and services. 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 infrastructure and datacenters.\n\nOur cloud business benefits from three economies of scale: datacenters that deploy computational resources at significantly lower cost per unit than smaller ones; datacenters that coordinate and aggregate diverse customer, geographic, and application demand patterns, improving the utilization of computing, storage, and network resources; and multi-tenancy locations that lower application maintenance labor costs.\n\nThe Microsoft Cloud provides the best integration across the technology stack while offering openness, improving time to value, reducing costs, and increasing agility. Being a global-scale cloud, Azure uniquely offers hybrid consistency, developer productivity, AI capabilities, and trusted security and compliance. We see more emerging use cases and needs for compute and security at the edge and are accelerating our innovation across the spectrum of intelligent edge devices, from Internet of Things (“IoT”) sensors to gateway devices and edge hardware to build, manage, and secure edge workloads.\n\nOur 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. Organizations large and small are deploying Azure AI solutions to achieve more at scale, more easily, with the proper enterprise-level and responsible AI protections.\n\nWe 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.\n\nOur 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.\n\nNuance, a leader in conversational AI and ambient intelligence across industries including healthcare, financial services, retail, and telecommunications, joined Microsoft in 2022. Microsoft and Nuance enable organizations to accelerate their business goals with security-focused, cloud-based solutions infused with AI.\n\nWe are accelerating our development of mixed reality solutions with new Azure services and devices. Microsoft Mesh enables organizations to create custom, immersive experiences for the workplace to help bring remote and hybrid workers and teams together.\n\nThe ability to convert data into AI drives our competitive advantage. The Microsoft Intelligent Data Platform is a leading cloud data platform that fully integrates databases, analytics, and governance. The platform empowers organizations to invest more time creating value rather than integrating and managing their data. Microsoft Fabric is an end-to-end, unified analytics platform that brings together all the data and analytics tools that organizations need.\n\nGitHub Copilot is at the forefront of AI-powered software development, giving developers a new tool to write code easier and faster so they can focus on more creative problem-solving. From GitHub to Visual Studio, we provide a developer tool chain for everyone, no matter the technical experience, across all platforms, whether Azure, Windows, or any other cloud or client platform.\n\nWindows also plays a critical role in fueling our cloud business with Windows 365, a desktop operating system that’s also a cloud service. From another internet-connected device, including Android or macOS devices, users can run Windows 365, just like a virtual machine.\n\nAdditionally, we are extending our infrastructure beyond the planet, bringing cloud computing to space. Azure Orbital is a fully managed ground station as a service for fast downlinking of data.\n\nCreate More Personal Computing\n\nWe strive to make computing more personal, enabling users to interact with technology in more intuitive, engaging, and dynamic ways.\n\nWindows 11 offers innovations focused on enhancing productivity, including Windows Copilot with centralized AI assistance and Dev Home to help developers become more productive. Windows 11 security and privacy features include operating system security, application security, and user and identity security.\n\nThrough our Search, News, Mapping, and Browser services, Microsoft delivers unique trust, privacy, and safety features. In February 2023, we launched an all new, AI-powered Microsoft Edge browser and Bing search engine with Bing Chat to deliver better search, more complete answers, and the ability to generate content. Microsoft Edge is our fast and secure browser that helps protect users’ data. Quick access to AI-powered tools, apps, and more within Microsoft Edge’s sidebar enhance browsing capabilities.\n\nWe are committed to designing and marketing first-party devices to help drive innovation, create new device categories, and stimulate demand in the Windows ecosystem. The Surface family includes Surface Pro, Surface Laptop, and other Surface products.\n\nMicrosoft continues to invest in gaming content, community, and cloud services. We have broadened our approach to how we think about gaming end-to-end, from the way games are created and distributed to how they are played, including subscription services like Xbox Game Pass and new devices from third-party manufacturers so players can engage across PC, console, and mobile. In January 2022, we announced plans to acquire Activision Blizzard, Inc., a leader in game development and an interactive entertainment content publisher.\n\nOur Future Opportunity\n\nWe are focused on helping customers use the breadth and depth of the Microsoft Cloud to get the most value out of their digital spend while leading the new AI wave across our solution areas. We continue to develop complete, intelligent solutions for our customers that empower people to be productive and collaborate, while safeguarding businesses and simplifying IT management. Our goal is to lead the industry in several distinct areas of technology over the long term, which we expect will translate to sustained growth. We are investing significant resources in:\n\nTransforming the workplace to deliver new modern, modular business applications, drive deeper insights, and improve how people communicate, collaborate, learn, work, and interact with one another.\n\nBuilding and running cloud-based services in ways that utilize ubiquitous computing to unleash new experiences and opportunities for businesses and individuals.\n\nApplying AI and ambient intelligence to drive insights, revolutionize many types of work, and provide substantive productivity gains using natural methods of communication.\n\nTackling security from all angles with our integrated, end-to-end solutions spanning security, compliance, identity, and management, across all clouds and platforms.\n\nInventing new gaming experiences that bring people together around their shared love for games on any devices and pushing the boundaries of innovation with console and PC gaming.\n\nUsing Windows to fuel our cloud business, grow our share of the PC market, and drive increased engagement with our services like Microsoft 365 Consumer, Microsoft Teams, Microsoft Edge, Bing, Xbox Game Pass, and more.\n\nOur future growth depends on our ability to transcend current product category definitions, business models, and sales motions.\n\nCorporate Social Responsibility\n\nCommitment to Sustainability\n\nMicrosoft’s approach to addressing climate change starts with the sustainability of our own business. In 2020, we committed to being a carbon negative, water positive, and zero waste company by 2030.\n\nIn May 2023, we released our Environmental Sustainability Report which looked back at our progress during fiscal year 2022. We continued to make progress on our goals, with our overall emissions declining by 0.5 percent. While our Scope 1 and Scope 2 emissions continued to decline, Scope 3 emissions increased by 0.5 percent. Scope 3 represented 96 percent of our total emissions, resulting primarily from the operations of our suppliers and the use of our products across our customers.\n\nA few examples of our continued progress include:\n\nSigned new power purchase agreements, bringing our total portfolio of carbon-free energy to over 13.5 gigawatts.\n\nContracted for water replenishment projects that are estimated to provide more than 15.6 million cubic meters in volumetric water benefit over the lifetime of these projects.\n\nDiverted 12,159 metric tons of solid waste from landfills and incinerators across our direct operational footprint.\n\nProtected 12,270 acres of land in Belize – more than the 11,206 acres of land that we use around the world.\n\nMicrosoft has a role to play in developing and advancing new climate solutions, but we recognize that no solution can be offered by any single company, organization, or government. Our approach helps to support the sustainability needs of our customers and the global community. Our Microsoft Cloud for Sustainability, an environmental sustainability management platform that includes Microsoft Sustainability Manager, enables organizations to record, report, and reduce their Scope 1, 2, and 3 emissions. These digital tools can interoperate with business systems and unify data intelligence for organizations.\n\nAddressing Racial Injustice and Inequity\n\nWe are committed to addressing racial injustice and inequity in the United States for Black and African American communities and helping improve lived experiences at Microsoft, in employees’ communities, and beyond. Our Racial Equity Initiative focuses on three multi-year pillars, each containing actions and progress we expect to make or exceed by 2025.\n\nStrengthening our communities: using data, technology, and partnerships to help improve the lives of Black and African American people in the United States, including our employees and their communities.\n\nEngaging our ecosystem: using our balance sheet and relationships with suppliers and partners to foster societal change and create new opportunities.\n\nIncreasing representation and strengthening inclusion: building on our momentum by adding a $150 million investment to strengthen inclusion and double the number of Black, African American, Hispanic, and Latinx leaders in the United States by 2025.\n\nIn fiscal year 2023, we collaborated with partners and worked within neighborhoods and communities to launch and scale a number of projects and programs, including:\n\nWorking with 103 unique organizations in 165 cities and counties on our Justice Reform Initiative to empower communities and advance racial equity and fairness in the justice system.\n\nIncreasing access to affordable broadband, devices, and digital literacy training across 14 geographies, including 11 cities and three states in the Black Rural south.\n\nGrowing our Nonprofit Tech Acceleration for Black and African American Communities program, which uses data, technology, and partnerships to help more than 2,000 local organizations to modernize and streamline operations.\n\nExpanding our Technology Education and Learning Support (“TEALS”) program to reach nearly 400 high schools in 21 communities to increase computer science opportunities for Black and African American students.\n\nWe exceeded our 2020 goal to double the percentage of our transaction volumes with Black- and African American-owned financial institutions by 2023. We are also increasing investment activity with Black- and African American-owned asset managers, which now represent 45 percent of our external manager group, enabling increased funds into local communities. We also met our goal of creating a $100 million program focused on mission-driven banks. We enriched our supplier pipeline, achieving our goal to spend $500 million with double the number of Black- and African American-owned suppliers. We also increased the number of identified partners in the Black Partner Growth Initiative by more than 250 percent, surpassing our initial goal.\n\nWe have made meaningful progress on representation and inclusion at Microsoft. As of June 2023, we are 93 percent of the way to our 2025 commitment to double the number of Black and African American people managers in the U.S. (below director level), and 107 percent of the way for Black and African American directors (people managers and individual contributors). We are 28 percent of the way for Hispanic and Latinx people managers (below director level) and 74 percent of the way for Hispanic and Latinx directors.\n\nInvesting in Digital Skills\n\nAfter helping over 80 million jobseekers around the world access digital skilling resources, we introduced a new Skills for Jobs initiative 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. Our Skills for Jobs initiative brings together learning resources, certification opportunities, and job-seeker tools from LinkedIn, GitHub, and Microsoft Learn, and is built on data insights drawn from LinkedIn’s Economic Graph.\n\nWe also launched a national campaign to help skill and recruit 250,000 people into the 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. We have expanded the cyber skills initiative to 27 additional countries that show elevated cyberthreat risks coupled with significant gaps in their cybersecurity workforces, partnering with nonprofits and other educational institutions to train the next generation of cybersecurity workers.\n\nGenerative AI is creating unparalleled opportunities to empower workers globally, but only if everyone has the skills to use it. To address this, in June 2023 we launched a new 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 are providing greater access to digital learning events and resources for everyone to improve their AI fluency.\n\nHUMAN CAPITAL RESOURCES\n\nOverview\n\nMicrosoft 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.\n\nAs of June 30, 2023, we employed approximately 221,000 people on a full-time basis, 120,000 in the U.S. and 101,000 internationally. Of the total employed people, 89,000 were in operations, including manufacturing, distribution, product support, and consulting services; 72,000 were in product research and development; 45,000 were in sales and marketing; and 15,000 were in general and administration. Certain employees are subject to collective bargaining agreements.\n\nOur Culture\n\nMicrosoft’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.\n\nOur employee listening systems enable us to gather feedback directly from our workforce to inform our programs and employee needs globally. Employees participate in our Employee Signals surveys, which cover a variety of topics such as thriving, inclusion, team culture, wellbeing, and learning and development. We also collect Daily Signals employee survey responses, giving us real-time insights into ways we can support our employees. In addition to Employee Signals and Daily Signals surveys, we gain insights through onboarding, exit surveys, internal Viva Engage channels, employee Q&A sessions, and our internal AskHR Service support.\n\nDiversity and inclusion are core to our business model, and we hold ourselves accountable for driving global systemic change in our workforce and creating an inclusive work environment. We support multiple highly active Employee Resource Groups for women, families, racial and ethnic minorities, military, people with disabilities, and employees who identify as LGBTQIA+, where employees can go for support, networking, and community-building. As described in our 2022 Proxy Statement, annual performance and compensation reviews of our senior leadership team include an evaluation of their contributions to employee culture and diversity. To ensure accountability over time, we publicly disclose our progress on a multitude of workforce metrics including:\n\nDetailed breakdowns of gender, racial, and ethnic minority representation in our employee population, with data by job types, levels, and segments of our business.\n\nOur EEO-1 report (equal employment opportunity).\n\nDisability representation.\n\nPay equity (see details below).\n\nTotal Rewards and Pay Equity\n\nWe develop dynamic, sustainable, market-driven, and strategic programs with the goal of providing a highly differentiated portfolio to attract, reward, and retain top talent and enable our employees to thrive. These programs reinforce our culture and values such as collaboration and growth mindset. Managers evaluate and recommend rewards based on, for example, how well we leverage the work of others and contribute to the success of our colleagues. We monitor pay equity and career progress across multiple dimensions. Our total compensation opportunity is highly differentiated and is market competitive.\n\nIn order to manage our costs in a dynamic, competitive environment, in fiscal year 2023 we announced that base salaries of salaried employees would remain at fiscal year 2022 levels. Pay increases continue to be available for rewards-eligible hourly and equivalent employees. We will continue our practice of investing in stock for all rewards-eligible employees, salaried and hourly, and investing in bonuses for all eligible employees.\n\nSince 2016, we have reported on pay equity as part of our annual Diversity and Inclusion report. In 2022, we reported that all racial and ethnic minority employees in the U.S. combined earn $1.008 for every $1.000 earned by their white counterparts, that women in the U.S. earn $1.007 for every $1.000 earned by their counterparts who are men, and that women outside the U.S. earn $1.002 for every $1.000 earned by their counterparts outside the U.S. who are men. In this year’s report, we again expanded our pay equity data beyond the U.S. to report on 61 additional countries (up from 12 last year), representing 99.8% of our global Microsoft workforce.\n\nIn addition, we began reporting on unadjusted median pay in our annual report, comparing total pay amounts for all employees regardless of factors such as job title, level, or tenure. For employees who are eligible for rewards, the analysis showed that total pay for women is 89.6% of total pay for men in the U.S. and 86.2% outside of the U.S., and total pay for racial and ethnic minorities in the U.S. is 89.9% of total pay for white employees. As we continue to increase representation for women and racial and ethnic minorities at more senior levels, and continue to ensure pay equity for all, the gap between the medians will reduce.\n\nOur intended result is a global performance and development approach that fosters our culture, and competitive compensation that ensures equitable pay by role while supporting pay for performance.\n\nWellbeing and Hybrid Work\n\nMicrosoft is committed to supporting our employees’ wellbeing while they are at work and in their personal lives. We have invested significantly in wellbeing, and offer a differentiated benefits package which includes many physical, emotional, and financial wellness programs including counseling through the Microsoft CARES Employee Assistance Program, mental wellbeing support, flexible fitness benefits, disability accommodations, savings and investment tools, adoption assistance, and back-up care for children and elders. Finally, our Occupational Health and Safety program helps ensure employees can stay safe while they are working.\n\nWe introduced Hybrid Workplace Flexibility Guidance to better support leaders, managers, and employees in hybrid work scenarios. Our ongoing survey data shows that 93% of employees value the flexibility related to work location, work site, and work hours, and 78% are satisfied with the quality of connection with co-workers. There is no one-size-fits-all approach to flexible work at Microsoft. As a company, we will continue to leverage data and research to inform decision making, balancing the needs of business, team, and individual.\n\nLearning and Development\n\nWe offer a range of learning opportunities, including personalized opportunities on our internal and external learning portals, in-classroom learning, required learning on compliance and company culture, on-the-job advancement opportunities, and manager coaching. We also provide customized manager learning, new employee orientation, and tools for operating in a flexible hybrid work environment.\n\nAll Microsoft employees globally access our single Viva Learning tool for both required and personal choice learning. This includes courses focused on our core principles and compliance matters, such as Business Conduct, Privacy, Security Foundations, and Harassment Prevention. We also deliver skills training for employees based on their profession and role discipline.\n\nWe have over 27,000 people managers, all of whom must complete between 20-33 hours of compulsory training on leadership and management and are assigned additional targeted training on an ongoing basis related to people management, compliance, and culture.\n\nOPERATING SEGMENTS\n\nWe 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.\n\nAdditional information on our operating segments and geographic and product information is contained in Note 19 – Segment Information and Geographic Data of the Notes to Financial Statements.\n\nOur reportable segments are described below.\n\nProductivity and Business Processes\n\nOur 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:\n\nOffice Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Microsoft 365 Copilot.\n\nOffice Consumer, including Microsoft 365 Consumer subscriptions, Office licensed on-premises, and other Office services.\n\nLinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.\n\nDynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, CRM (including Customer Insights), Power Apps, and Power Automate; and on-premises ERP and CRM applications.\n\nOffice Commercial\n\nOffice Commercial is designed to increase personal, team, and organizational productivity through a range of products and 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 value to our core product and service offerings to span productivity categories such as communication, collaboration, analytics, security, and compliance. Office 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 Office 365.\n\nOffice Consumer\n\nOffice 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, and continue to expand our product and service offerings into new markets. Office Consumer 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. Office Consumer Services revenue is mainly affected by the demand for communication and storage through Skype, Outlook.com, and OneDrive, which is largely driven by subscriptions, advertising, and the sale of minutes.\n\nLinkedIn\n\nLinkedIn connects the world’s professionals to make them more productive and successful and transforms the way companies hire, market, sell, and learn. Our vision is to create economic opportunity for every member of the global workforce through the ongoing development of the world’s first Economic Graph, a digital representation of the global economy. In addition to LinkedIn’s free services, LinkedIn offers monetized solutions: Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions. Talent Solutions provide insights for workforce planning and tools to hire, nurture, and develop talent. Talent Solutions also includes Learning Solutions, which help businesses close critical skills gaps in times where companies are having to do more with existing talent. Marketing Solutions help companies reach, engage, and convert their audiences at scale. Premium Subscriptions enable professionals to manage their professional identity, grow their network, find jobs, and connect with talent through additional services like premium search. Sales Solutions help companies strengthen customer relationships, empower teams with digital selling tools, and acquire new opportunities. LinkedIn has over 950 million members and has offices around the globe. Growth will depend on our ability to increase the number of LinkedIn members and our ability to continue offering services that provide value for our members and increase their engagement. LinkedIn revenue is mainly affected by demand from enterprises and professional organizations 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.\n\nDynamics\n\nDynamics provides cloud-based and on-premises business solutions for financial management, enterprise resource planning (“ERP”), customer relationship management (“CRM”), supply chain management, and other 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 Power Apps and Power Automate.\n\nCompetition\n\nCompetitors to Office include software and global application vendors, such as Apple, Cisco Systems, Meta, Google, Okta, Proofpoint, Slack, Symantec, Zoom, and numerous web-based and mobile application competitors as well as local application developers. Apple distributes versions of its pre-installed application software, such as email and calendar products, through its PCs, tablets, and phones. Cisco Systems is using its position in enterprise communications equipment to grow its unified communications business. Meta offers communication tools to enable productivity and engagement within organizations. Google provides a hosted messaging and productivity suite. Slack provides teamwork and collaboration software. Zoom offers videoconferencing and cloud phone solutions. Okta, Proofpoint, and Symantec provide security solutions across email security, information protection, identity, and governance. Web-based offerings competing with individual applications have also positioned themselves as alternatives to our products and services. We compete by providing powerful, flexible, secure, integrated industry-specific, and easy-to-use productivity and collaboration tools and services that create comprehensive solutions and work well with technologies our customers already have both on-premises or in the cloud.\n\nLinkedIn faces competition from online professional networks, recruiting companies, talent management companies, and larger companies that are focusing on talent management and human resource services; job boards; traditional recruiting firms; and companies that provide learning and development products and services. Marketing Solutions competes with online and offline outlets that generate revenue from advertisers and marketers, and Sales Solutions competes with online and offline outlets for companies with lead generation and customer intelligence and insights.\n\nDynamics competes with cloud-based and on-premises business solution providers such as Oracle, Salesforce, and SAP.\n\nIntelligent Cloud\n\nOur Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business and developers. This segment primarily comprises:\n\nServer 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.\n\nEnterprise Services, including Enterprise Support Services, Industry Solutions (formerly Microsoft Consulting Services), and Nuance professional services.\n\nServer Products and Cloud Services\n\nAzure is a comprehensive set of cloud services that offer developers, IT professionals, and enterprises freedom to build, deploy, and manage applications on any platform or device. Customers can use Azure through our global network of datacenters for computing, networking, storage, mobile and web application services, AI, IoT, cognitive services, and machine learning. Azure enables customers to devote more resources to development and use of applications that benefit their organizations, rather than managing on-premises hardware and software. Azure revenue is mainly affected by infrastructure-as-a-service and platform-as-a-service consumption-based services, and per user-based services such as Enterprise Mobility + Security.\n\nAzure AI offerings provide a competitive advantage as companies seek ways to optimize and scale their business with machine learning. Azure’s purpose-built, AI-optimized infrastructure allows advanced models, including GPT-4 services designed for developers and data scientists, to do more with less. Customers can integrate large language models and develop the next generation of AI apps and services.\n\nOur server products are designed to make IT professionals, developers, and their systems more productive and efficient. Server software is integrated server infrastructure and middleware designed to support software applications built on the Windows Server operating system. This includes the server platform, database, business intelligence, storage, management and operations, virtualization, service-oriented architecture platform, security, and identity software. We also license standalone and software development lifecycle tools for software architects, developers, testers, and project managers. Server products revenue is mainly affected by purchases through volume licensing programs, licenses sold to original equipment manufacturers (“OEM”), and retail packaged products. CALs provide access rights to certain server products, including SQL Server and Windows Server, and revenue is reported along with the associated server product.\n\nNuance and GitHub include both cloud and on-premises offerings. Nuance provides healthcare and enterprise AI solutions. GitHub provides a collaboration platform and code hosting service for developers.\n\nEnterprise Services\n\nEnterprise Services, including Enterprise Support Services, Industry Solutions, and Nuance Professional Services, assist customers in developing, deploying, and managing Microsoft server solutions, Microsoft desktop solutions, and Nuance conversational AI and ambient intelligent solutions, along with providing training and certification to developers and IT professionals on various Microsoft products.\n\nCompetition\n\nAzure faces diverse competition from companies such as Amazon, Google, IBM, Oracle, VMware, and open source offerings. Azure’s competitive advantage includes enabling a hybrid cloud, allowing deployment of existing datacenters with our public cloud into a single, cohesive infrastructure, and the ability to run at a scale that meets the needs of businesses of all sizes and complexities. Our AI offerings compete with AI products from hyperscalers such as Amazon Bedrock, Amazon CodeWhisperer, and Google AI, as well as products from other emerging competitors, many of which are also current or potential partners, including Meta’s LLaMA2 and other open source solutions. Our Enterprise Mobility + Security offerings also compete with products from a range of competitors including identity vendors, security solution vendors, and numerous other security point solution vendors. We believe our cloud’s global scale, coupled with our broad portfolio of identity and security solutions, allows us to effectively solve complex cybersecurity challenges for our customers and differentiates us from the competition.\n\nOur server products face competition from a wide variety of server operating systems and applications offered by companies with a range of market approaches. Vertically integrated computer manufacturers such as Hewlett-Packard, IBM, and Oracle offer their own versions of the Unix operating system preinstalled on server hardware. Nearly all computer manufacturers offer server hardware for the Linux operating system, and many contribute to Linux operating system development. The competitive position of Linux has also benefited from the large number of compatible applications now produced by many commercial and non-commercial software developers. A number of companies, such as Red Hat, supply versions of Linux.\n\nWe compete to provide enterprise-wide computing solutions and point solutions with numerous commercial software vendors that offer solutions and middleware technology platforms, software applications for connectivity (both Internet and intranet), security, hosting, database, and e-business servers. IBM and Oracle lead a group of companies focused on the Java Platform Enterprise Edition that competes with our enterprise-wide computing solutions. Commercial competitors for our server applications for PC-based distributed client-server environments include CA Technologies, IBM, and Oracle. Our web application platform software competes with open source software such as Apache, Linux, MySQL, and PHP. In middleware, we compete against Java vendors.\n\nOur database, business intelligence, and data warehousing solutions offerings compete with products from IBM, Oracle, SAP, Snowflake, and other companies. Our system management solutions compete with server management and server virtualization platform providers, such as BMC, CA Technologies, Hewlett-Packard, IBM, and VMware. Our products for software developers compete against offerings from Adobe, IBM, Oracle, and other companies, and also against open source projects, including Eclipse (sponsored by CA Technologies, IBM, Oracle, and SAP), PHP, and Ruby on Rails.\n\nWe believe our server products provide customers with advantages in performance, total costs of ownership, and productivity by delivering superior applications, development tools, compatibility with a broad base of hardware and software applications, security, and manageability.\n\nOur Enterprise Services business competes with a wide range of companies that provide strategy and business planning, application development, and infrastructure services, including multinational consulting firms and small niche businesses focused on specific technologies.\n\nMore Personal Computing\n\nOur More Personal Computing segment consists of products and services that put customers at the center of the experience with our technology. This segment primarily comprises:\n\nWindows, including Windows OEM licensing (“Windows OEM”) and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows IoT.\n\nDevices, including Surface, HoloLens, and PC accessories.\n\nGaming, including Xbox hardware and Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, third-party disc royalties, and other cloud services.\n\nSearch and news advertising, comprising Bing (including Bing Chat), Microsoft News, Microsoft Edge, and third-party affiliates.\n\nWindows\n\nThe Windows operating system is designed to deliver a more personal computing experience for users by enabling consistency of experience, applications, and information across their devices. Windows OEM revenue is impacted significantly by the number of Windows operating system licenses purchased by OEMs, which they pre-install on the devices they sell. In addition to computing device market volume, Windows OEM revenue is impacted by:\n\nThe mix of computing devices based on form factor and screen size.\n\nDifferences in device market demand between developed markets and growth markets.\n\nAttachment of Windows to devices shipped.\n\nCustomer mix between consumer, small and medium businesses, and large enterprises.\n\nChanges in inventory levels in the OEM channel.\n\nPricing changes and promotions, pricing variation that occurs when the mix of devices manufactured shifts from local and regional system builders to large multinational OEMs, and different pricing of Windows versions licensed.\n\nConstraints in the supply chain of device components.\n\nPiracy.\n\nWindows Commercial revenue, which includes volume licensing of the Windows operating system and Windows cloud services such as Microsoft Defender for Endpoint, is affected mainly by the demand from commercial customers for volume licensing and Software Assurance (“SA”), as well as advanced security offerings. Windows Commercial revenue often reflects the number of information workers in a licensed enterprise and is relatively independent of the number of PCs sold in a given year.\n\nPatent licensing includes our programs to license patents we own for use across a broad array of technology areas, including mobile devices and cloud offerings.\n\nWindows IoT extends the power of Windows and the cloud to intelligent systems by delivering specialized operating systems, tools, and services for use in embedded devices.\n\nDevices\n\nWe design and sell devices, including Surface, HoloLens, and PC accessories. Our devices are designed to enable people and organizations to connect to the people and content that matter most using Windows and integrated Microsoft products and services. Surface is designed to help organizations, students, and consumers be more productive. Growth in Devices is dependent on total PC shipments, the ability to attract new customers, our product roadmap, and expanding into new categories.\n\nGaming\n\nOur gaming platform is designed to provide a variety of entertainment through a unique combination of content, community, and cloud services. Our exclusive game content is created through Xbox Game Studios, a collection of first-party studios creating iconic and differentiated gaming experiences. We continue to invest in 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 over 400 first- and third-party console and PC titles.\n\nThe gamer remains at the heart of the Xbox ecosystem. We are identifying new opportunities to attract gamers across a variety of different end points through our first- and third-party content and business diversification across subscriptions, ads, and digital stores. We’ve seen new devices from third-party manufacturers along with key PC and mobile end points that help us empower gamers to play in a way that is most convenient to them. We are focused on growing the platform and expanding to new ecosystems to engage as many gamers as possible. \n\nXbox enables people to connect and share online gaming experiences that are accessible on Xbox consoles, Windows-enabled devices, and other devices. Xbox is designed to benefit users by providing access to a network of certified applications and services and to benefit our developer and partner ecosystems by providing access to a large customer base. Xbox revenue is mainly affected by subscriptions and sales of first- and third-party content, as well as advertising. Growth of our Gaming business is determined by the overall active user base through Xbox enabled content, availability of games, providing exclusive game content that gamers seek, the computational power and reliability of the devices used to access our content and services, and the ability to create new experiences through first-party content creators.\n\nSearch and News Advertising\n\nOur Search and news advertising business is designed to deliver relevant search, native, and display advertising to a global audience. Our Microsoft Edge browser and Bing Chat capabilities are key tools to enable user acquisition and engagement, while our technology platform enables accelerated delivery of digital advertising solutions. In addition to first-party tools, we have several partnerships with companies, such as Yahoo, through which we provide and monetize search offerings. Growth depends on our ability to attract new users, understand intent, and match intent with relevant content on advertising offerings.\n\nCompetition\n\nWindows faces competition from various software products and from alternative platforms and devices, mainly from Apple and Google. We believe Windows competes effectively by giving customers choice, value, flexibility, security, an easy-to-use interface, and compatibility with a broad range of hardware and software applications, including those that enable productivity.\n\nDevices face competition from various computer, tablet, and hardware manufacturers who offer a unique combination of high-quality industrial design and innovative technologies across various price points. These manufacturers, many of which are also current or potential partners and customers, include Apple and our Windows OEMs.\n\nXbox and our cloud gaming services face competition from various online gaming ecosystems and game streaming services, including those operated by Amazon, Apple, Meta, and Tencent. We also compete with other providers of entertainment services such as video streaming platforms. Our gaming platform competes with console platforms from Nintendo and Sony, both of which have a large, established base of customers. We believe our gaming platform is effectively positioned against, and uniquely differentiated from, competitive products and services based on significant innovation in hardware architecture, user interface, developer tools, online gaming and entertainment services, and continued strong exclusive content from our own first-party game franchises as well as other digital content offerings.\n\nOur Search and news advertising business competes with Google and a wide array of websites, social platforms like Meta, and portals that provide content and online offerings to end users.\n\nOPERATIONS\n\nWe have regional operations service centers that support our operations, including customer contract and order processing, billing, credit and collections, information processing, and vendor management and logistics. The center in Ireland supports the African, Asia-Pacific, European, and Middle East regions; and the centers in Arlington, Virginia, Atlanta, Georgia, Charlotte, North Carolina, Fargo, North Dakota, Fort Lauderdale, Florida, Redmond, Washington, Reno, Nevada, and Puerto Rico support the American regions.\n\nIn addition to our operations centers, we also operate datacenters throughout each of these regions. We continue to identify and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services. Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units (“GPUs”) and other components.\n\nOur devices are primarily manufactured by third-party contract manufacturers. For the majority of our products, we have the ability to use other manufacturers if a current vendor becomes unavailable or unable to meet our requirements. However, some of our products contain certain components for which there are very few qualified suppliers. Extended disruptions at these suppliers could impact our ability to manufacture devices on time to meet consumer demand.\n\nRESEARCH AND DEVELOPMENT\n\nProduct and Service Development, and Intellectual Property\n\nWe develop most of our products and services internally through the following engineering groups.\n\nCloud and AI – focuses on making IT professionals, developers, partners, independent software vendors, and their systems more productive and efficient through development of Azure AI platform and cloud infrastructure, server, database, CRM, ERP, software development tools and services (including GitHub), AI cognitive services, and other business process applications and services for enterprises.\n\nStrategic Missions and Technologies – focuses on incubating technical products and support solutions with transformative potential for the future of cloud computing and continued company growth across quantum computing, Azure Space & Missions Engineering, telecommunications, and Microsoft Federal Sales and Delivery.\n\nExperiences and Devices – focuses on delivering high value end-user experiences across our products, services, and devices, including Microsoft 365, Windows, Microsoft Teams, Search (including Microsoft Edge and Bing Chat) and other advertising-based services, and the Surface line of devices.\n\nMicrosoft Security – focuses on delivering a comprehensive portfolio of services that protect our customers’ digital infrastructure through cloud platform and application security, data protection and governance, identity and network access, and device management. \n\nTechnology and Research – focuses on fundamental research, product and business incubations, and forward-looking AI innovations that span infrastructure, services, and applications.\n\nLinkedIn – focuses on our services that transform the way professionals grow their network and find jobs and the way businesses hire, market, sell, and learn.\n\nGaming – focuses on developing hardware, content, and services across a large range of platforms to help grow our user base through game experiences and social interaction.\n\nInternal development allows us to maintain competitive advantages that come from product differentiation and closer technical control over our products and services. It also gives us the freedom to decide which modifications and enhancements are most important and when they should be implemented. We strive to obtain information as early as possible about changing usage patterns and hardware advances that may affect software and hardware design. Before releasing new software platforms, and as we make significant modifications to existing platforms, we provide application vendors with a range of resources and guidelines for development, training, and testing. Generally, we also create product documentation internally.\n\nWe protect our intellectual property investments in a variety of ways. We work actively in the U.S. and internationally to ensure the enforcement of copyright, trademark, trade secret, and other protections that apply to our software and hardware products, services, business plans, and branding. We are a leader among technology companies in pursuing patents and currently have a portfolio of over 70,000 U.S. and international patents issued and over 19,000 pending worldwide. While we employ much of our internally-developed intellectual property in our products and services, we also engage in outbound licensing of specific patented technologies that are incorporated into licensees’ products. From time to time, we enter into broader cross-license agreements with other technology companies covering entire groups of patents. We may also purchase or license technology that we incorporate into our products and services. At times, we make select intellectual property broadly available at no or low cost to achieve a strategic objective, such as promoting industry standards, advancing interoperability, supporting societal and/or environmental efforts, or attracting and enabling our external development community. Our increasing engagement with open source software will also cause us to license our intellectual property rights broadly in certain situations.\n\nWhile it may be necessary in the future to seek or renew licenses relating to various aspects of our products and services, we believe, based upon past experience and industry practice, such licenses generally can be obtained on commercially reasonable terms. We believe our continuing research and product development are not materially dependent on any single license or other agreement with a third party relating to the development of our products.\n\nInvesting in the Future\n\nOur success is based on our ability to create new and compelling products, services, and experiences for our users, to initiate and embrace disruptive technology trends, to enter new geographic and product markets, and to drive broad adoption of our products and services. We invest in a range of emerging technology trends and breakthroughs that we believe offer significant opportunities to deliver value to our customers and growth for the company. Based on our assessment of key technology trends, we maintain our long-term commitment to research and development across a wide spectrum of technologies, tools, and platforms spanning digital work and life experiences, cloud computing, AI, devices, and operating systems.\n\nWhile our main product research and development facilities are located in Redmond, Washington, we also operate research and development facilities in other parts of the U.S. and around the world. This global approach helps us remain competitive in local markets and enables us to continue to attract top talent from across the world.\n\nWe plan to continue to make significant investments in a broad range of product research and development activities, and as appropriate we will coordinate our research and development across operating segments and leverage the results across the company.\n\nIn addition to our main research and development operations, we also operate Microsoft Research. Microsoft Research is one of the world’s largest corporate research organizations, often working in close collaboration with top universities around the world, and is focused on advancing the state-of-the-art in computer science and a broad range of other disciplines. Our investment in fundamental research provides us a unique perspective on future trends and contributes to our innovation.\n\nDISTRIBUTION, SALES, AND MARKETING\n\nWe market and distribute our products and services through the following channels: OEMs, direct, and distributors and resellers. 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; 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 services.\n\nOEMs\n\nWe distribute our products and services through OEMs that pre-install our software on new devices and servers they sell. The largest component of the OEM business is the Windows operating system pre-installed on devices. OEMs also sell devices pre-installed with other Microsoft products and services, including applications such as Office and the capability to subscribe to Office 365.\n\nThere are two broad categories of OEMs. The largest category of OEMs are direct OEMs as our relationship with them is managed through a direct agreement between Microsoft and the OEM. We have distribution agreements covering one or more of our products with virtually all the multinational OEMs, including Dell, Hewlett-Packard, Lenovo, and with many regional and local OEMs. The second broad category of OEMs are system builders consisting of lower-volume PC manufacturers, which source Microsoft software for pre-installation and local redistribution primarily through the Microsoft distributor channel rather than through a direct agreement or relationship with Microsoft.\n\nDirect\n\nMany organizations that license our products and services transact directly with us through Enterprise Agreements and Enterprise Services contracts, with sales support from system integrators, independent software vendors, web agencies, and partners that advise organizations on licensing our products and services (“Enterprise Agreement Software Advisors” or “ESA”). Microsoft offers direct sales programs targeted to reach small, medium, and corporate customers, in addition to those offered through the reseller channel. A large network of partner advisors support many of these sales.\n\nWe also sell commercial and consumer products and services directly to customers, such as cloud services, search, and gaming, through our digital marketplaces and online stores. Additionally, our Microsoft Experience Centers are designed to facilitate deeper engagement with our partners and customers across industries.\n\nDistributors and Resellers\n\nOrganizations also license our products and services indirectly, primarily through licensing solution partners (“LSP”), distributors, value-added resellers (“VAR”), and retailers. Although each type of reselling partner may reach organizations of all sizes, LSPs are primarily engaged with large organizations, distributors resell primarily to VARs, and VARs typically reach small and medium organizations. ESAs are also typically authorized as LSPs and operate as resellers for our other volume licensing programs. Microsoft Cloud Solution Provider is our main partner program for reselling cloud services.\n\nWe distribute our retail packaged products primarily through independent non-exclusive distributors, authorized replicators, resellers, and retail outlets. Individual consumers obtain these products primarily through retail outlets. We distribute our devices through third-party retailers. We have a network of field sales representatives and field support personnel that solicit orders from distributors and resellers and provide product training and sales support.\n\nOur Dynamics business solutions are also licensed to enterprises through a global network of channel partners providing vertical solutions and specialized services.\n\nLICENSING OPTIONS\n\nWe offer options for organizations that want to purchase our cloud services, on-premises software, and SA. We license software to organizations under volume licensing agreements to allow the customer to acquire multiple licenses of products and services instead of having to acquire separate licenses through retail channels. We use different programs designed to provide flexibility for organizations of various sizes. While these programs may differ in various parts of the world, generally they include those discussed below.\n\nSA conveys rights to new software and upgrades for perpetual licenses released over the contract period. It also provides support, tools, training, and other licensing benefits to help customers deploy and use software efficiently. SA is included with certain volume licensing agreements and is an optional purchase with others.\n\nVolume Licensing Programs\n\nEnterprise Agreement\n\nEnterprise Agreements offer large organizations a manageable volume licensing program that gives them the flexibility to buy cloud services and software licenses under one agreement. Enterprise Agreements are designed for medium or large organizations that want to license cloud services and on-premises software organization-wide over a three-year period. Organizations can elect to purchase perpetual licenses or subscribe to licenses. SA is included.\n\nMicrosoft Customer Agreement\n\nA Microsoft Customer Agreement is a simplified purchase agreement presented, accepted, and stored through a digital experience. A Microsoft Customer Agreement is a non-expiring agreement that is designed to support all customers over time, whether purchasing through a partner or directly from Microsoft.\n\nMicrosoft Online Subscription Agreement\n\nA Microsoft Online Subscription Agreement is designed for small and medium organizations that want to subscribe to, activate, provision, and maintain cloud services seamlessly and directly via the web. The agreement allows customers to acquire monthly or annual subscriptions for cloud-based services.\n\nMicrosoft Products and Services Agreement\n\nMicrosoft Products and Services Agreements are designed for medium and large organizations that want to license cloud services and on-premises software as needed, with no organization-wide commitment, under a single, non-expiring agreement. Organizations purchase perpetual licenses or subscribe to licenses. SA is optional for customers that purchase perpetual licenses.\n\nOpen Value\n\nOpen Value agreements are a simple, cost-effective way to acquire the latest Microsoft technology. These agreements are designed for small and medium organizations that want to license cloud services and on-premises software over a three-year period. Under Open Value agreements, organizations can elect to purchase perpetual licenses or subscribe to licenses and SA is included.\n\nSelect Plus\n\nA Select Plus agreement is designed for government and academic organizations to acquire on-premises licenses at any affiliate or department level, while realizing advantages as one organization. Organizations purchase perpetual licenses and SA is optional.\n\nPartner Programs\n\nThe Microsoft Cloud Solution Provider Program offers customers an easy way to license the cloud services they need in combination with the value-added services offered by their systems integrator, managed services provider, or cloud reseller partner. Partners in this program can easily package their own products and services to directly provision, manage, and support their customer subscriptions.\n\nThe Microsoft Services Provider License Agreement allows hosting service providers and independent software vendors who want to license eligible Microsoft software products to provide software services and hosted applications to their end customers. Partners license software over a three-year period and are billed monthly based on consumption.\n\nThe Independent Software Vendor Royalty Program enables partners to integrate Microsoft products into other applications and then license the unified business solution to their end users.\n\nCUSTOMERS\n\nOur customers include individual consumers, small and medium organizations, large global enterprises, public-sector institutions, Internet service providers, application developers, and OEMs. Our practice is to ship our products promptly upon receipt of purchase orders from customers; consequently, backlog is not significant.\n\nAVAILABLE INFORMATION\n\nOur Internet address is www.microsoft.com. At our Investor Relations website, www.microsoft.com/investor, we make available free of charge a variety of information for investors. Our goal is to maintain the Investor Relations website as a portal through which investors can easily find or navigate to pertinent information about us, including:\n\nOur annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the Securities and Exchange Commission (“SEC”) at www.sec.gov.\n\nInformation on our business strategies, financial results, and metrics for investors.\n\nAnnouncements of investor conferences, speeches, and events at which our executives talk about our product, service, and competitive strategies. Archives of these events are also available.\n\nPress releases on quarterly earnings, product and service announcements, legal developments, and international news.\n\nCorporate governance information including our articles of incorporation, bylaws, governance guidelines, committee charters, codes of conduct and ethics, global corporate social responsibility initiatives, and other governance-related policies.\n\nOther news and announcements that we may post from time to time that investors might find useful or interesting.\n\nOpportunities to sign up for email alerts to have information pushed in real time.\n\nWe 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 sustainability, responsible sourcing, accessibility, digital trust, and public policy engagement.\n\nThe information found on these websites is not part of, or incorporated by reference into, this or any other report we file with, or furnish to, the SEC. In addition to these channels, we use social media to communicate to the public. It is possible that the information we post on social media could be deemed to be material to investors. We encourage investors, the media, and others interested in Microsoft to review the information we post on the social media channels listed on our Investor Relations website.\n\nDiscussion & Analysis\n\nMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\nThe following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Microsoft Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements. This section generally discusses the results of our operations for the year ended June 30, 2023 compared to the year ended June 30, 2022. For a discussion of the year ended June 30, 2022 compared to the year ended June 30, 2021, please refer to, “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, 2022.\n\nOVERVIEW\n\nMicrosoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more. We strive to create local opportunity, growth, and impact in every country around the world. We are creating the platforms and tools, powered by artificial intelligence (“AI”), that deliver better, faster, and more effective solutions to support small and large business competitiveness, improve educational and health outcomes, grow public-sector efficiency, and empower human ingenuity.\n\nWe generate revenue by offering a wide range of cloud-based solutions, content, and other services to people and businesses; licensing and supporting an array of software products; delivering relevant online advertising to a global audience; and designing and selling devices. Our most significant expenses are related to compensating employees; supporting and investing in our cloud-based services, including datacenter operations; designing, manufacturing, marketing, and selling our other products and services; and income taxes.\n\nHighlights from fiscal year 2023 compared with fiscal year 2022 included:\n\nMicrosoft Cloud revenue increased 22% to $111.6 billion.\n\nOffice Commercial products and cloud services revenue increased 10% driven by Office 365 Commercial growth of 13%.\n\nOffice Consumer products and cloud services revenue increased 2% and Microsoft 365 Consumer subscribers increased to 67.0 million.\n\nLinkedIn revenue increased 10%.\n\nDynamics products and cloud services revenue increased 16% driven by Dynamics 365 growth of 24%.\n\nServer products and cloud services revenue increased 19% driven by Azure and other cloud services growth of 29%.\n\nWindows original equipment manufacturer licensing (“Windows OEM”) revenue decreased 25%.\n\nDevices revenue decreased 24%.\n\nWindows Commercial products and cloud services revenue increased 5%.\n\nXbox content and services revenue decreased 3%.\n\nSearch and news advertising revenue excluding traffic acquisition costs increased 11%.\n\nIndustry Trends\n\nOur industry is dynamic and highly competitive, with frequent changes in both technologies and business models. Each industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the industry and our business. At Microsoft, we push the boundaries of what is possible through a broad range of research and development activities that seek to identify and address the changing demands of customers and users, industry trends, and competitive forces.\n\nEconomic Conditions, Challenges, and Risks\n\nThe markets for software, devices, and cloud-based services are dynamic and highly competitive. Our competitors are developing new software and devices, while also deploying competing cloud-based services for consumers and businesses. The devices and form factors customers prefer evolve rapidly, influencing how users access services in the cloud and, in some cases, the user’s choice of which suite of cloud-based services to use. Aggregate demand for our software, services, and devices is also correlated to global macroeconomic and geopolitical factors, which remain dynamic. We must continue to evolve and adapt over an extended time in pace with this changing environment.\n\nThe investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and may decrease our operating margins. We continue to identify and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services. Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units (“GPUs”) and other components. Our devices are primarily manufactured by third-party contract manufacturers. For the majority of our products, we have the ability to use other manufacturers if a current vendor becomes unavailable or unable to meet our requirements. However, some of our products contain certain components for which there are very few qualified suppliers. Extended disruptions at these suppliers could impact our ability to manufacture devices on time to meet consumer demand.\n\nOur success is highly dependent on our ability to attract and retain qualified employees. We hire a mix of university and industry talent worldwide. We compete for talented individuals globally by offering an exceptional working environment, broad customer reach, scale in resources, the ability to grow one’s career across many different products and businesses, and competitive compensation and benefits.\n\nOur international operations provide a significant portion of our total revenue and expenses. Many of these revenue and expenses are denominated in currencies other than the U.S. dollar. As a result, changes in foreign exchange rates may significantly affect revenue and expenses. Fluctuations in the U.S. dollar relative to certain foreign currencies reduced reported revenue and expenses from our international operations in fiscal year 2023.\n\nOn January 18, 2023, we announced decisions we made to align our cost structure with our revenue and customer demand, prioritize our investments in strategic areas, and consolidate office space. As a result, we recorded a $1.2 billion charge in the second quarter of fiscal year 2023 (“Q2 charge”), which included employee severance expenses of $800 million, impairment charges resulting from changes to our hardware portfolio, and costs related to lease consolidation activities. First, we reduced our overall workforce by approximately 10,000 jobs through the third quarter of fiscal year 2023 related to the Q2 charge, which represents less than 5% of our total employee base. While we eliminated roles in some areas, we will continue to hire in key strategic areas. Second, we are allocating both our capital and talent to areas of secular growth and long-term competitiveness, while divesting in other areas. Third, we are consolidating our leases to create higher density across our workspaces, which impacted our financial results through the remainder of fiscal year 2023, and we may make similar decisions in future periods as we continue to evaluate our real estate needs.\n\nRefer to Risk Factors in our fiscal year 2023 Form 10-K for a discussion of these factors and other risks.\n\nSeasonality\n\nOur revenue fluctuates quarterly and is generally higher in the second and fourth quarters of our fiscal year. Second quarter revenue is driven by corporate year-end spending trends in our major markets and holiday season spending by consumers, and fourth quarter revenue is driven by the volume of multi-year on-premises contracts executed during the period. \n\nChange in Accounting Estimate\n\nIn 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. Based on the carrying amount of server and network equipment included in property and equipment, net as of June 30, 2022, the effect of this change in estimate for fiscal year 2023 was an increase in operating income of $3.7 billion and net income of $3.0 billion, or $0.40 per both basic and diluted share.\n\nReportable Segments\n\nWe report our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The segment amounts included in MD&A are presented on a basis consistent with our internal management reporting. We have recast certain prior period amounts to conform to the way we internally manage and monitor our business.\n\nAdditional information on our reportable segments is contained in Note 19 – Segment Information and Geographic Data of the Notes to Financial Statements.\n\nMetrics\n\nWe use metrics in assessing the performance of our business and to make informed decisions regarding the allocation of resources. We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into performance trends, and reflect the continued evolution of our products and services. Our commercial and other business metrics are fundamentally connected based on how customers use our products and services. The metrics are disclosed in the MD&A or the Notes to Financial Statements. Financial metrics are calculated based on financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and growth comparisons relate to the corresponding period of last fiscal year.\n\nIn the first quarter of fiscal year 2023, we made updates to the presentation and method of calculation for certain metrics, most notably expanding our Surface metric into a broader Devices metric to incorporate additional revenue streams, along with other minor changes to align with how we manage our businesses.\n\nCommercial\n\nOur commercial business primarily consists of Server products and cloud services, Office Commercial, Windows Commercial, the commercial portion of LinkedIn, Enterprise Services, and Dynamics. Our commercial metrics allow management and investors to assess the overall health of our commercial business and include leading indicators of future performance.\n\nCommercial remaining performance obligation\n\nCommercial portion of revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods\n\nMicrosoft Cloud revenue\n\nRevenue from Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties\n\nMicrosoft Cloud gross margin percentage\n\nGross margin percentage for our Microsoft Cloud business\n\nProductivity and Business Processes and Intelligent Cloud\n\nMetrics related to our Productivity and Business Processes and Intelligent Cloud segments assess the health of our core businesses within these segments. The metrics reflect our cloud and on-premises product strategies and trends.\n\nOffice Commercial products and cloud services revenue growth\n\nRevenue from Office Commercial products and cloud services (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Microsoft 365 Copilot\n\nOffice Consumer products and cloud services revenue growth\n\nRevenue from Office Consumer products and cloud services, including Microsoft 365 Consumer subscriptions, Office licensed on-premises, and other Office services\n\nOffice 365 Commercial seat growth\n\nThe number of Office 365 Commercial seats at end of period where seats are paid users covered by an Office 365 Commercial subscription\n\nMicrosoft 365 Consumer subscribers\n\nThe number of Microsoft 365 Consumer subscribers at end of period\n\nDynamics products and cloud services revenue growth\n\nRevenue from Dynamics products and cloud services, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, CRM (including Customer Insights), Power Apps, and Power Automate; and on-premises ERP and CRM applications\n\nLinkedIn revenue growth\n\nRevenue from LinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions\n\nServer products and cloud services revenue growth\n\nRevenue 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\n\nMore Personal Computing\n\nMetrics related to our More Personal Computing segment assess the performance of key lines of business within this segment. 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.\n\nWindows OEM revenue growth\n\nRevenue from sales of Windows Pro and non-Pro licenses sold through the OEM channel\n\nWindows Commercial products and cloud \n\nservices revenue growth\n\nRevenue from Windows Commercial products and cloud services, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings\n\nDevices revenue growth\n\nRevenue from Devices, including Surface, HoloLens, and PC accessories\n\nXbox content and services revenue growth\n\nRevenue from Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, third-party disc royalties, and other cloud services\n\nSearch and news advertising revenue (ex TAC) \n\ngrowth\n\nRevenue from search and news advertising excluding traffic acquisition costs (“TAC”) paid to Bing Ads network publishers and news partners\n\nSUMMARY RESULTS OF OPERATIONS\n\n(In millions, except percentages and per share amounts)\n2023\n2022\nPercentage\n\nChange\n\nRevenue\n$ 211,915\n$ 198,270\n7%\n\nGross margin\n146,052\n135,620\n8%\n\nOperating income\n88,523\n83,383\n6%\n\nNet income\n72,361\n72,738\n(1)%\n\nDiluted earnings per share\n9.68\n9.65\n0%\n\nAdjusted gross margin (non-GAAP)\n146,204\n135,620\n8%\n\nAdjusted operating income (non-GAAP)\n89,694\n83,383\n8%\n\nAdjusted net income (non-GAAP)\n73,307\n69,447\n6%\n\nAdjusted diluted earnings per share (non-GAAP)\n9.81\n9.21\n7%\n\nAdjusted gross margin, operating income, net income, and diluted earnings per share (“EPS”) are non-GAAP financial measures. Current year non-GAAP financial measures exclude the impact of the Q2 charge, which includes employee severance expenses, impairment charges resulting from changes to our hardware portfolio, and costs related to lease consolidation activities. Prior year non-GAAP financial measures exclude the net income tax benefit related to transfer of intangible properties in the first quarter of fiscal year 2022. Refer to Note 12 – Income Taxes of the Notes to Financial Statements for further discussion. 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.\n\nFiscal Year 2023 Compared with Fiscal Year 2022\n\nRevenue increased $13.6 billion or 7% driven by growth in Intelligent Cloud and Productivity and Business Processes, offset in part by a decline in More Personal Computing. Intelligent Cloud revenue increased driven by Azure and other cloud services. Productivity and Business Processes revenue increased driven by Office 365 Commercial and LinkedIn. More Personal Computing revenue decreased driven by Windows and Devices.\n\nCost of revenue increased $3.2 billion or 5% driven by growth in Microsoft Cloud, offset in part by the change in accounting estimate.\n\nGross margin increased $10.4 billion or 8% driven by growth in Intelligent Cloud and Productivity and Business Processes and the change in accounting estimate, offset in part by a decline in More Personal Computing.\n\nGross margin percentage increased slightly. Excluding the impact of the change in accounting estimate, gross margin percentage decreased 1 point driven by declines in Intelligent Cloud and More Personal Computing, offset in part by sales mix shift between our segments.\n\nMicrosoft Cloud gross margin percentage increased 2 points to 72%. Excluding the impact of the change in accounting estimate, Microsoft Cloud gross margin percentage decreased slightly driven by a decline in Azure and other cloud services and sales mix shift to Azure and other cloud services, offset in part by improvement in Office 365 Commercial.\n\nOperating expenses increased $5.3 billion or 10% driven by employee severance expenses, 2 points of growth from the Nuance and Xandr acquisitions, investments in cloud engineering, and LinkedIn.\n\nOperating income increased $5.1 billion or 6% driven by growth in Productivity and Business Processes and Intelligent Cloud and the change in accounting estimate, offset in part by a decline in More Personal Computing.\n\nRevenue, gross margin, and operating income included an unfavorable foreign currency impact of 4%, 4%, and 6%, respectively. Cost of revenue and operating expenses both included a favorable foreign currency impact of 2%.\n\nCurrent 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. Prior year net income and diluted EPS were positively impacted by the net tax benefit related to the transfer of intangible properties, which resulted in an increase to net income and diluted EPS of $3.3 billion and $0.44, respectively.\n\nSEGMENT RESULTS OF OPERATIONS\n\n(In millions, except percentages)\n2023\n\n2022\nPercentage\n\nChange\n\nRevenue\n\nProductivity and Business Processes\n$ 69,274\n\n$ 63,364\n9%\n\nIntelligent Cloud\n87,907\n\n74,965\n17%\n\nMore Personal Computing\n54,734\n\n59,941\n(9)%\n\nTotal\n$ 211,915\n\n$ 198,270\n7%\n\nOperating Income\n\nProductivity and Business Processes\n$ 34,189\n\n$ 29,690\n15%\n\nIntelligent Cloud\n37,884\n\n33,203\n14%\n\nMore Personal Computing\n16,450\n\n20,490\n(20)%\n\nTotal\n$ 88,523\n\n$ 83,383\n6%\n\nReportable Segments\n\nFiscal Year 2023 Compared with Fiscal Year 2022\n\nProductivity and Business Processes\n\nRevenue increased $5.9 billion or 9%.\n\nOffice Commercial products and cloud services revenue increased $3.7 billion or 10%. Office 365 Commercial revenue grew 13% with seat growth of 11%, driven by small and medium business and frontline worker offerings, as well as growth in revenue per user. Office Commercial products revenue declined 21% driven by continued customer shift to cloud offerings.\n\nOffice Consumer products and cloud services revenue increased $140 million or 2%. Microsoft 365 Consumer subscribers grew 12% to 67.0 million.\n\nLinkedIn revenue increased $1.3 billion or 10% driven by Talent Solutions.\n\nDynamics products and cloud services revenue increased $750 million or 16% driven by Dynamics 365 growth of 24%.\n\nOperating income increased $4.5 billion or 15%.\n\nGross margin increased $5.8 billion or 12% driven by growth in Office 365 Commercial and LinkedIn, as well as the change in accounting estimate. Gross margin percentage increased. Excluding the impact of the change in accounting estimate, gross margin percentage increased slightly driven by improvement in Office 365 Commercial, offset in part by sales mix shift to cloud offerings.\n\nOperating expenses increased $1.3 billion or 7% driven by investment in LinkedIn and employee severance expenses.\n\nRevenue, gross margin, and operating income included an unfavorable foreign currency impact of 5%, 5%, and 8%, respectively.\n\nIntelligent Cloud\n\nRevenue increased $12.9 billion or 17%.\n\nServer products and cloud services revenue increased $12.6 billion or 19% driven by Azure and other cloud services. Azure and other cloud services revenue grew 29% driven by growth in our consumption-based services. Server products revenue decreased 1%.\n\nEnterprise Services revenue increased $315 million or 4% driven by growth in Enterprise Support Services, offset in part by a decline in Industry Solutions (formerly Microsoft Consulting Services).\n\nOperating income increased $4.7 billion or 14%.\n\nGross margin increased $8.9 billion or 17% driven by growth in Azure and other cloud services and the change in accounting estimate. Gross margin percentage decreased slightly. Excluding the impact of the change in accounting estimate, gross margin percentage decreased 3 points driven by sales mix shift to Azure and other cloud services and a decline in Azure and other cloud services.\n\nOperating expenses increased $4.2 billion or 21% driven by investments in Azure, 4 points of growth from the Nuance acquisition, and employee severance expenses.\n\nRevenue, gross margin, and operating income included an unfavorable foreign currency impact of 4%, 4%, and 6%, respectively. Operating expenses included a favorable foreign currency impact of 2%.\n\nMore Personal Computing\n\nRevenue decreased $5.2 billion or 9%.\n\nWindows revenue decreased $3.2 billion or 13% driven by a decrease in Windows OEM. Windows OEM revenue decreased 25% as elevated channel inventory levels continued to drive additional weakness beyond declining PC demand. Windows Commercial products and cloud services revenue increased 5% driven by demand for Microsoft 365.\n\nDevices revenue decreased $1.8 billion or 24% as elevated channel inventory levels continued to drive additional weakness beyond declining PC demand.\n\nGaming revenue decreased $764 million or 5% driven by declines in Xbox hardware and Xbox content and services. Xbox hardware revenue decreased 11% driven by lower volume and price of consoles sold. Xbox content and services revenue decreased 3% driven by a decline in first-party content, offset in part by growth in Xbox Game Pass.\n\nSearch and news advertising revenue increased $617 million or 5%. Search and news advertising revenue excluding traffic acquisition costs increased 11% driven by higher search volume and the Xandr acquisition.\n\nOperating income decreased $4.0 billion or 20%.\n\nGross margin decreased $4.2 billion or 13% driven by declines in Windows and Devices. Gross margin percentage decreased driven by a decline in Devices.\n\nOperating expenses decreased $195 million or 2% driven by a decline in Devices, offset in part by investments in Search and news advertising, including 2 points of growth from the Xandr acquisition.\n\nRevenue, gross margin, and operating income included an unfavorable foreign currency impact of 3%, 4%, and 6%, respectively. Operating expenses included a favorable foreign currency impact of 2%.\n\nOPERATING EXPENSES\n\nResearch and Development\n\n(In millions, except percentages)\n2023\n2022\nPercentage\n\nChange\n\nResearch and development\n$ 27,195\n$ 24,512\n11%\n\nAs a percent of revenue\n13%\n12%\n1ppt\n\nResearch and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs and the amortization of purchased software code and services content.\n\nFiscal Year 2023 Compared with Fiscal Year 2022\n\nResearch and development expenses increased $2.7 billion or 11% driven by investments in cloud engineering and LinkedIn.\n\nSales and Marketing\n\n(In millions, except percentages)\n2023\n2022\nPercentage\n\nChange\n\nSales and marketing\n$ 22,759\n$ 21,825\n4%\n\nAs a percent of revenue\n11%\n11%\n0ppt\n\nSales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs.\n\nFiscal Year 2023 Compared with Fiscal Year 2022\n\nSales and marketing expenses increased $934 million or 4% driven by 3 points of growth from the Nuance and Xandr acquisitions and investments in commercial sales, offset in part by a decline in Windows advertising. Sales and marketing included a favorable foreign currency impact of 2%.\n\nGeneral and Administrative\n\n(In millions, except percentages)\n2023\n2022\nPercentage\n\nChange\n\nGeneral and administrative\n$ 7,575\n$ 5,900\n28%\n\nAs a percent of revenue\n4%\n3%\n1ppt\n\nGeneral and administrative expenses include payroll, employee benefits, stock-based compensation expense, employee severance expense incurred as part of a corporate program, and other headcount-related expenses associated with finance, legal, facilities, certain human resources and other administrative personnel, certain taxes, and legal and other administrative fees.\n\nFiscal Year 2023 Compared with Fiscal Year 2022\n\nGeneral and administrative expenses increased $1.7 billion or 28% driven by employee severance expenses and a charge related to a non-public preliminary draft decision provided by the Irish Data Protection Commission. General and administrative included a favorable foreign currency impact of 2%.\n\nOTHER INCOME (EXPENSE), NET\n\nThe components of other income (expense), net were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\nInterest and dividends income\n$ 2,994\n\n$ 2,094\n\nInterest expense\n(1,968)\n\n(2,063)\n\nNet recognized gains on investments\n260\n\n461\n\nNet losses on derivatives\n(456)\n\n(52)\n\nNet gains (losses) on foreign currency remeasurements\n181\n\n(75)\n\nOther, net\n(223)\n\n(32)\n\nTotal\n$ 788\n\n$ 333\n\nWe use derivative instruments to manage risks related to foreign currencies, equity prices, interest rates, and credit; enhance investment returns; and facilitate portfolio diversification. Gains and losses from changes in fair values of derivatives that are not designated as hedging instruments are primarily recognized in other income (expense), net.\n\nFiscal Year 2023 Compared with Fiscal Year 2022\n\nInterest and dividends income increased due to higher yields, offset in part by lower portfolio balances. Interest expense decreased due to a decrease in outstanding long-term debt due to debt maturities. Net recognized gains on investments decreased due to lower gains on equity securities and higher losses on fixed income securities. Net losses on derivatives increased due to losses related to managing strategic investments.\n\nINCOME TAXES\n\nEffective Tax Rate\n\nOur effective tax rate for fiscal years 2023 and 2022 was 19% and 13%, respectively. The increase in our effective tax rate was primarily due to a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of intangible properties and a decrease in tax benefits relating to stock-based compensation.\n\nIn the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico subsidiary to the U.S. The transfer of intangible properties resulted in a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022, as the value of future U.S. tax deductions exceeded the current tax liability from the U.S. global intangible low-taxed income tax.\n\nOur effective tax rate was lower than the U.S. federal statutory rate, primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland.\n\nThe mix of income before income taxes between the U.S. and foreign countries impacted our effective tax rate as a result of the geographic distribution of, and customer demand for, our products and services. In fiscal year 2023, our U.S. income before income taxes was $52.9 billion and our foreign income before income taxes was $36.4 billion. In fiscal year 2022, our U.S. income before income taxes was $47.8 billion and our foreign income before income taxes was $35.9 billion.\n\nUncertain Tax Positions\n\nWe settled a portion of the Internal Revenue Service (“IRS”) audit for tax years 2004 to 2006 in fiscal year 2011. In February 2012, the IRS withdrew its 2011 Revenue Agents Report related to unresolved issues for tax years 2004 to 2006 and reopened the audit phase of the examination. We also settled a portion of the IRS audit for tax years 2007 to 2009 in fiscal year 2016, and a portion of the IRS audit for tax years 2010 to 2013 in fiscal year 2018. In the second quarter of fiscal year 2021, we settled an additional portion of the IRS audits for tax years 2004 to 2013 and made a payment of $1.7 billion, including tax and interest. We remain under audit for tax years 2004 to 2017.\n\nAs of June 30, 2023, the primary unresolved issues for the IRS audits relate to transfer pricing, which could have a material impact in our consolidated financial statements when the matters are resolved. We believe our allowances for income tax contingencies are adequate. We have not received a proposed assessment for the unresolved key transfer pricing issues. We do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months.\n\nWe are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years 1996 to 2022, some of which are currently under audit by local tax authorities. The resolution of each of these audits is not expected to be material to our consolidated financial statements.\n\nNON-GAAP FINANCIAL MEASURES\n\nAdjusted gross margin, operating income, net income, and diluted EPS are non-GAAP financial measures. Current year non-GAAP financial measures exclude the impact of the Q2 charge, which includes employee severance expenses, impairment charges resulting from changes to our hardware portfolio, and costs related to lease consolidation activities. Prior year non-GAAP financial measures exclude the net income tax benefit related to transfer of intangible properties in the first quarter of fiscal year 2022. We believe these non-GAAP measures aid investors by providing additional insight into our operational performance and help clarify trends affecting our business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. These non-GAAP financial measures presented should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.\n\nThe following table reconciles our financial results reported in accordance with GAAP to non-GAAP financial results:\n\n(In millions, except percentages and per share amounts)\n2023\n\n2022\nPercentage\n\nChange\n\nGross margin\n$ 146,052\n\n$ 135,620\n8%\n\nSeverance, hardware-related impairment, and lease consolidation costs\n152\n\n0\n*\n\nAdjusted gross margin (non-GAAP)\n$ 146,204\n\n$ 135,620\n8%\n\nOperating income\n$ 88,523\n\n$ 83,383\n6%\n\nSeverance, hardware-related impairment, and lease consolidation costs\n1,171\n\n0\n*\n\nAdjusted operating income (non-GAAP)\n$ 89,694\n\n$ 83,383\n8%\n\nNet income\n$ 72,361\n\n$ 72,738\n(1)%\n\nSeverance, hardware-related impairment, and lease consolidation costs\n946\n\n0\n*\n\nNet income tax benefit related to transfer of intangible properties\n0\n\n(3,291)\n*\n\nAdjusted net income (non-GAAP)\n$ 73,307\n\n$ 69,447\n6%\n\nDiluted earnings per share\n$ 9.68\n\n$ 9.65\n0%\n\nSeverance, hardware-related impairment, and lease consolidation costs\n0.13\n\n0\n*\n\nNet income tax benefit related to transfer of intangible properties\n0\n\n(0.44)\n*\n\nAdjusted diluted earnings per share (non-GAAP)\n$ 9.81\n\n$ 9.21\n7%\n\nNot meaningful.\n\nLIQUIDITY AND CAPITAL RESOURCES\n\nWe 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.\n\nCash, Cash Equivalents, and Investments\n\nCash, cash equivalents, and short-term investments totaled $111.3 billion and $104.8 billion as of June 30, 2023 and 2022, respectively. Equity investments were $9.9 billion and $6.9 billion as of June 30, 2023 and 2022, 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.\n\nValuation\n\nIn 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.\n\nA 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. In addition, all our broker-priced investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriate for these investments. Our fair value processes include controls that are designed to ensure appropriate fair values are recorded. These controls include model validation, review of key model inputs, analysis of period-over-period fluctuations, and independent recalculation of prices where appropriate.\n\nCash Flows\n\nCash from operations decreased $1.5 billion to $87.6 billion for fiscal year 2023, mainly due to an increase in cash paid to employees and suppliers and cash used to pay income taxes, offset in part by an increase in cash received from customers. Cash used in financing decreased $14.9 billion to $43.9 billion for fiscal year 2023, mainly due to a $10.5 billion decrease in common stock repurchases and a $6.3 billion decrease in repayments of debt, offset in part by a $1.7 billion increase in dividends paid. Cash used in investing decreased $7.6 billion to $22.7 billion for fiscal year 2023, due to a $20.4 billion decrease in cash used for acquisitions of companies, net of cash acquired, and purchases of intangible and other assets, offset in part by a $8.2 billion decrease in cash from net investment purchases, sales, and maturities, and a $4.2 billion increase in additions to property and equipment.\n\nDebt Proceeds\n\nWe issue debt to take advantage of favorable pricing and liquidity in the debt markets, reflecting our credit rating and the low interest rate environment. The proceeds of these issuances were or will be used for general corporate purposes, which may include, among other things, funding for working capital, capital expenditures, repurchases of capital stock, acquisitions, and repayment of existing debt. Refer to Note 11 – Debt of the Notes to Financial Statements for further discussion.\n\nUnearned Revenue\n\nUnearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include Software Assurance (“SA”) and cloud services. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service. Refer to Note 1 – Accounting Policies of the Notes to Financial Statements for further discussion.\n\nThe following table outlines the expected future recognition of unearned revenue as of June 30, 2023:\n\n(In millions)\n\nThree Months Ending\n\nSeptember 30, 2023\n$ 19,673\n\nDecember 31, 2023\n15,600\n\nMarch 31, 2024\n10,801\n\nJune 30, 2024\n4,827\n\nThereafter\n2,912\n\nTotal\n$53,813\n\nIf our customers choose to license cloud-based versions of our products and services rather than licensing transaction-based products and services, the associated revenue will shift from being recognized at the time of the transaction to being recognized over the subscription period or upon consumption, as applicable. Refer to Note 13 – Unearned Revenue of the Notes to Financial Statements for further discussion.\n\nMaterial Cash Requirements and Other Obligations\n\nContractual Obligations\n\nThe following table summarizes the payments due by fiscal year for our outstanding contractual obligations as of June 30, 2023:\n\n(In millions)\n2024\n\nThereafter\n\nTotal\n\nLong-term debt: (a)\n\nPrincipal payments\n$ 5,250\n\n$ 47,616\n\n$ 52,866\n\nInterest payments\n1,379\n\n19,746\n\n21,125\n\nConstruction commitments (b)\n12,237\n\n1,218\n\n13,455\n\nOperating and finance leases, including imputed interest (c)\n5,988\n\n73,852\n\n79,840\n\nPurchase commitments (d)\n64,703\n\n3,115\n\n67,818\n\nTotal\n$ 89,557\n\n$ 145,547\n\n$ 235,104\n\nRefer to Note 11 – Debt of the Notes to Financial Statements.\n\nRefer to Note 7 – Property and Equipment of the Notes to Financial Statements.\n\nRefer to Note 14 – Leases of the Notes to Financial Statements.\n\nPurchase commitments primarily relate to datacenters and include open purchase orders and take-or-pay contracts that are not presented as construction commitments above.\n\nIncome Taxes\n\nAs a result of the TCJA, we are required to pay a one-time transition tax on deferred foreign income not previously subject to U.S. income tax. Under the TCJA, the transition tax is payable in interest-free installments over eight years, with 8% due in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight. We have paid transition tax of $7.7 billion, which included $1.5 billion for fiscal year 2023. The remaining transition tax of $10.5 billion is payable over the next three years, with $2.7 billion payable within 12 months.\n\nIn fiscal year 2023, we paid cash tax of $4.8 billion due to the mandatory capitalization for tax purposes of research and development expenditures enacted by the TCJA and effective on July 1, 2022.\n\nShare Repurchases\n\nDuring fiscal years 2023 and 2022, we repurchased 69 million shares and 95 million shares of our common stock for $18.4 billion and $28.0 billion, respectively, through our share repurchase programs. All repurchases were made using cash resources. As of June 30, 2023, $22.3 billion remained of our $60 billion share repurchase program. Refer to Note 16 – Stockholders’ Equity of the Notes to Financial Statements for further discussion.\n\nDividends\n\nDuring fiscal year 2023 and 2022, our Board of Directors declared quarterly dividends of $0.68 per share and $0.62 per share, totaling $20.2 billion and $18.6 billion, respectively. We intend to continue returning capital to shareholders in the form of dividends, subject to declaration by our Board of Directors. Refer to Note 16 – Stockholders’ Equity of the Notes to Financial Statements for further discussion.\n\nOther Planned Uses of Capital\n\nOn January 18, 2022, we entered into a definitive agreement to acquire Activision Blizzard, Inc. (“Activision Blizzard”) for $95.00 per share in an all-cash transaction valued at $68.7 billion, inclusive of Activision Blizzard’s net cash. The acquisition has been approved by Activision Blizzard’s shareholders. We continue to work toward closing the transaction subject to obtaining required regulatory approvals and satisfaction of other customary closing conditions. Microsoft and Activision Blizzard have jointly agreed to extend the merger agreement through October 18, 2023 to allow for additional time to resolve remaining regulatory concerns.\n\nWe will continue to invest in sales, marketing, product support infrastructure, and existing and advanced areas of technology, as well as acquisitions that align with our business strategy. Additions to property and equipment will continue, including new facilities, datacenters, and computer systems for research and development, sales and marketing, support, and administrative staff. We expect capital expenditures to increase in coming years to support growth in our cloud offerings and our investments in AI infrastructure. We have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. We have not engaged in any related party transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of capital resources.\n\nCRITICAL ACCOUNTING ESTIMATES\n\nOur consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and could have a material impact on our financial condition or results of operations. We have critical accounting estimates in the areas of revenue recognition, impairment of investment securities, goodwill, research and development costs, legal and other contingencies, income taxes, and inventories.\n\nRevenue Recognition\n\nOur contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided.\n\nJudgment is required to determine the stand-alone selling price (“SSP”) for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.\n\nIn instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.\n\nDue to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, including the exercise pattern of certain benefits across our portfolio of customers.\n\nOur products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our products and services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Changes to our estimated variable consideration were not material for the periods presented.\n\nImpairment of Investment Securities\n\nWe review debt investments quarterly for credit losses and impairment. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. This determination requires significant judgment. In making this judgment, we employ a systematic methodology that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments.\n\nEquity investments without readily determinable fair values are written down to fair value if a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than carrying value. We perform a qualitative assessment on a periodic basis. We are required to estimate the fair value of the investment to determine the amount of the impairment loss. Once an investment is determined to be impaired, an impairment charge is recorded in other income (expense), net.\n\nGoodwill\n\nWe allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.\n\nApplication of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital.\n\nThe estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.\n\nResearch and Development Costs\n\nCosts incurred internally in researching and developing a computer software product are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to production. The amortization of these costs is included in cost of revenue over the estimated life of the products.\n\nLegal and Other Contingencies\n\nThe outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our consolidated financial statements.\n\nIncome Taxes\n\nThe objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accounting literature also provides guidance on derecognition of income tax assets and liabilities, classification of deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our consolidated financial statements.\n\nInventories\n\nInventories 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. These reviews include analysis of demand forecasts, product life cycle status, product development plans, current sales levels, pricing strategy, and component cost trends. 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.\n\nSTATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS\n\nManagement is responsible for the preparation of the consolidated financial statements and related information that are presented in this report. The consolidated financial statements, which include amounts based on management’s estimates and judgments, have been prepared in conformity with accounting principles generally accepted in the United States of America.\n\nThe Company designs and maintains accounting and internal control systems to provide reasonable assurance at reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing consolidated financial statements and maintaining accountability for assets. These systems are augmented by written policies, an organizational structure providing division of responsibilities, careful selection and training of qualified personnel, and a program of internal audits.\n\nThe Company engaged Deloitte & Touche LLP, an independent registered public accounting firm, to audit and render an opinion on the consolidated financial statements and internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).\n\nThe Board of Directors, through its Audit Committee, consisting solely of independent directors of the Company, meets periodically with management, internal auditors, and our independent registered public accounting firm to ensure that each is meeting its responsibilities and to discuss matters concerning internal controls and financial reporting. Deloitte & Touche LLP and the internal auditors each have full and free access to the Audit Committee.\n\nSatya Nadella\n\nChief Executive Officer\n\nAmy E. Hood\n\nExecutive Vice President and Chief Financial Officer\n\nAlice L. Jolla\n\nCorporate Vice President and Chief Accounting Officer\n\nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\nRISKS\n\nWe are exposed to economic risk from foreign exchange rates, interest rates, credit risk, and equity prices. We use derivatives instruments to manage these risks, however, they may still impact our consolidated financial statements.\n\nForeign Currencies\n\nCertain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency positions, including hedges. Principal currency exposures include the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar.\n\nInterest Rate\n\nSecurities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We manage the average maturity of the fixed-income portfolio to achieve economic returns that correlate to certain global fixed-income indices.\n\nCredit\n\nOur fixed-income portfolio is diversified and consists primarily of investment-grade securities. We manage credit exposures relative to broad-based indices to facilitate portfolio diversification.\n\nEquity\n\nSecurities held in our equity investments portfolio are subject to price risk.\n\nSENSITIVITY ANALYSIS\n\nThe following table sets forth the potential loss in future earnings or fair values, including associated derivatives, resulting from hypothetical changes in relevant market rates or prices:\n\n(In millions)\n\nRisk Categories\n      \nHypothetical Change\nJune 30,\n\n2023\n\nImpact\n\nForeign currency – Revenue\n\n10% decrease in foreign exchange rates\n$ (8,122)\n\nEarnings\n\nForeign currency – Investments\n\n10% decrease in foreign exchange rates\n(29)\n\nFair Value\n\nInterest rate\n\n100 basis point increase in U.S. treasury interest rates\n(1,832)\n\nFair Value\n\nCredit\n\n100 basis point increase in credit spreads\n(354)\n\nFair Value\n\nEquity\n\n10% decrease in equity market prices\n(705)\n\nEarnings\n\nFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA\n\nINCOME STATEMENTS\n\n(In millions, except per share amounts)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nRevenue:\n\nProduct\n$ 64,699\n\n$ 72,732\n\n$ 71,074\n\nService and other\n147,216\n\n125,538\n\n97,014\n\nTotal revenue\n211,915\n\n198,270\n\n168,088\n\nCost of revenue:\n\nProduct\n17,804\n\n19,064\n\n18,219\n\nService and other\n48,059\n\n43,586\n\n34,013\n\nTotal cost of revenue\n65,863\n\n62,650\n\n52,232\n\nGross margin\n146,052\n\n135,620\n\n115,856\n\nResearch and development\n27,195\n\n24,512\n\n20,716\n\nSales and marketing\n22,759\n\n21,825\n\n20,117\n\nGeneral and administrative\n7,575\n\n5,900\n\n5,107\n\nOperating income\n88,523\n\n83,383\n\n69,916\n\nOther income, net\n788\n\n333\n\n1,186\n\nIncome before income taxes\n89,311\n\n83,716\n\n71,102\n\nProvision for income taxes\n16,950\n\n10,978\n\n9,831\n\nNet income\n$ 72,361\n\n$ 72,738\n\n$ 61,271\n\nEarnings per share:\n\nBasic\n$ 9.72\n\n$ 9.70\n\n$ 8.12\n\nDiluted\n$ 9.68\n\n$ 9.65\n\n$ 8.05\n\nWeighted average shares outstanding:\n\nBasic\n7,446\n\n7,496\n\n7,547\n\nDiluted\n7,472\n\n7,540\n\n7,608\n\nRefer to accompanying notes.\n\nCOMPREHENSIVE INCOME STATEMENTS\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nNet income\n$ 72,361\n\n$ 72,738\n\n$ 61,271\n\nOther comprehensive income (loss), net of tax:\n\nNet change related to derivatives\n(14)\n\n6\n\n19\n\nNet change related to investments\n(1,444)\n\n(5,360)\n\n(2,266)\n\nTranslation adjustments and other\n(207)\n\n(1,146)\n\n873\n\nOther comprehensive loss\n(1,665)\n\n(6,500)\n\n(1,374)\n\nComprehensive income\n$ 70,696\n\n$ 66,238\n\n$ 59,897\n\nRefer to accompanying notes.\n\nBALANCE SHEETS\n\n(In millions)\n\nJune 30,\n2023\n\n2022\n\nAssets\n\nCurrent assets:\n\nCash and cash equivalents\n$ 34,704\n\n$ 13,931\n\nShort-term investments\n76,558\n\n90,826\n\nTotal cash, cash equivalents, and short-term investments\n111,262\n\n104,757\n\nAccounts receivable, net of allowance for doubtful accounts of $650 and $633\n48,688\n\n44,261\n\nInventories\n2,500\n\n3,742\n\nOther current assets\n21,807\n\n16,924\n\nTotal current assets\n184,257\n\n169,684\n\nProperty and equipment, net of accumulated depreciation of $68,251 and $59,660\n95,641\n\n74,398\n\nOperating lease right-of-use assets\n14,346\n\n13,148\n\nEquity investments\n9,879\n\n6,891\n\nGoodwill\n67,886\n\n67,524\n\nIntangible assets, net\n9,366\n\n11,298\n\nOther long-term assets\n30,601\n\n21,897\n\nTotal assets\n$ 411,976\n\n$ 364,840\n\nLiabilities and stockholders’ equity\n\nCurrent liabilities:\n\nAccounts payable\n$ 18,095\n\n$ 19,000\n\nCurrent portion of long-term debt\n5,247\n\n2,749\n\nAccrued compensation\n11,009\n\n10,661\n\nShort-term income taxes\n4,152\n\n4,067\n\nShort-term unearned revenue\n50,901\n\n45,538\n\nOther current liabilities\n14,745\n\n13,067\n\nTotal current liabilities\n104,149\n\n95,082\n\nLong-term debt\n41,990\n\n47,032\n\nLong-term income taxes\n25,560\n\n26,069\n\nLong-term unearned revenue\n2,912\n\n2,870\n\nDeferred income taxes\n433\n\n230\n\nOperating lease liabilities\n12,728\n\n11,489\n\nOther long-term liabilities\n17,981\n\n15,526\n\nTotal liabilities\n205,753\n\n198,298\n\nCommitments and contingencies\n\nStockholders’ equity:\n\nCommon stock and paid-in capital – shares authorized 24,000; outstanding 7,432 and 7,464\n93,718\n\n86,939\n\nRetained earnings\n118,848\n\n84,281\n\nAccumulated other comprehensive loss\n(6,343)\n\n(4,678)\n\nTotal stockholders’ equity\n206,223\n\n166,542\n\nTotal liabilities and stockholders’ equity\n$ 411,976\n\n$ 364,840\n\nRefer to accompanying notes.\n\nCASH FLOWS STATEMENTS\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nOperations\n\nNet income\n$ 72,361\n\n$ 72,738\n\n$ 61,271\n\nAdjustments to reconcile net income to net cash from operations:\n\nDepreciation, amortization, and other\n13,861\n\n14,460\n\n11,686\n\nStock-based compensation expense\n9,611\n\n7,502\n\n6,118\n\nNet recognized losses (gains) on investments and derivatives\n196\n\n(409)\n\n(1,249)\n\nDeferred income taxes\n(6,059)\n\n(5,702)\n\n(150)\n\nChanges in operating assets and liabilities:\n\nAccounts receivable\n(4,087)\n\n(6,834)\n\n(6,481)\n\nInventories\n1,242\n\n(1,123)\n\n(737)\n\nOther current assets\n(1,991)\n\n(709)\n\n(932)\n\nOther long-term assets\n(2,833)\n\n(2,805)\n\n(3,459)\n\nAccounts payable\n(2,721)\n\n2,943\n\n2,798\n\nUnearned revenue\n5,535\n\n5,109\n\n4,633\n\nIncome taxes\n(358)\n\n696\n\n(2,309)\n\nOther current liabilities\n2,272\n\n2,344\n\n4,149\n\nOther long-term liabilities\n553\n\n825\n\n1,402\n\nNet cash from operations\n87,582\n\n89,035\n\n76,740\n\nFinancing\n\nCash premium on debt exchange\n0\n\n0\n\n(1,754)\n\nRepayments of debt\n(2,750)\n\n(9,023)\n\n(3,750)\n\nCommon stock issued\n1,866\n\n1,841\n\n1,693\n\nCommon stock repurchased\n(22,245)\n\n(32,696)\n\n(27,385)\n\nCommon stock cash dividends paid\n(19,800)\n\n(18,135)\n\n(16,521)\n\nOther, net\n(1,006)\n\n(863)\n\n(769)\n\nNet cash used in financing\n(43,935)\n\n(58,876)\n\n(48,486)\n\nInvesting\n\nAdditions to property and equipment\n(28,107)\n\n(23,886)\n\n(20,622)\n\nAcquisition of companies, net of cash acquired, and purchases of intangible and other assets\n(1,670)\n\n(22,038)\n\n(8,909)\n\nPurchases of investments\n(37,651)\n\n(26,456)\n\n(62,924)\n\nMaturities of investments\n33,510\n\n16,451\n\n51,792\n\nSales of investments\n14,354\n\n28,443\n\n14,008\n\nOther, net\n(3,116)\n\n(2,825)\n\n(922)\n\nNet cash used in investing\n(22,680)\n\n(30,311)\n\n(27,577)\n\nEffect of foreign exchange rates on cash and cash equivalents\n(194)\n\n(141)\n\n(29)\n\nNet change in cash and cash equivalents\n20,773\n\n(293)\n\n648\n\nCash and cash equivalents, beginning of period\n13,931\n\n14,224\n\n13,576\n\nCash and cash equivalents, end of period\n$ 34,704\n\n$ 13,931\n\n$ 14,224\n\nRefer to accompanying notes.\n\nSTOCKHOLDERS’ EQUITY STATEMENTS\n\n(In millions, except per share amounts)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nCommon stock and paid-in capital\n\nBalance, beginning of period\n$ 86,939\n\n$ 83,111\n\n$ 80,552\n\nCommon stock issued\n1,866\n\n1,841\n\n1,963\n\nCommon stock repurchased\n(4,696)\n\n(5,688)\n\n(5,539)\n\nStock-based compensation expense\n9,611\n\n7,502\n\n6,118\n\nOther, net\n(2)\n\n173\n\n17\n\nBalance, end of period\n93,718\n\n86,939\n\n83,111\n\nRetained earnings\n\nBalance, beginning of period\n84,281\n\n57,055\n\n34,566\n\nNet income\n72,361\n\n72,738\n\n61,271\n\nCommon stock cash dividends\n(20,226)\n\n(18,552)\n\n(16,871)\n\nCommon stock repurchased\n(17,568)\n\n(26,960)\n\n(21,879)\n\nCumulative effect of accounting changes\n0\n\n0\n\n(32)\n\nBalance, end of period\n118,848\n\n84,281\n\n57,055\n\nAccumulated other comprehensive income (loss)\n\nBalance, beginning of period\n(4,678)\n\n1,822\n\n3,186\n\nOther comprehensive loss\n(1,665)\n\n(6,500)\n\n(1,374)\n\nCumulative effect of accounting changes\n0\n\n0\n\n10\n\nBalance, end of period\n(6,343)\n\n(4,678)\n\n1,822\n\nTotal stockholders’ equity\n$ 206,223\n\n$ 166,542\n\n$ 141,988\n\nCash dividends declared per common share\n$ 2.72\n\n$ 2.48\n\n$ 2.24\n\nRefer to accompanying notes.\n\nNOTES\nNOTES TO FINANCIAL STATEMENTS\n\nNOTE 1 — ACCOUNTING POLICIES\n\nAccounting Principles\n\nOur consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).\n\nWe have recast certain prior period amounts to conform to the current period presentation. The recast of these prior period amounts had no impact on our consolidated balance sheets, consolidated income statements, or consolidated cash flows statements.\n\nPrinciples of Consolidation\n\nThe consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated.\n\nEstimates and Assumptions\n\nPreparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price (“SSP”) of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; product warranties; the fair value of and/or potential impairment of goodwill and intangible assets for our reporting units; product life cycles; useful lives of our tangible and intangible assets; allowances for doubtful accounts; the market value of, and demand for, our inventory; stock-based compensation forfeiture rates; when technological feasibility is achieved for our products; the potential outcome of uncertain tax positions that have been recognized in our consolidated financial statements or tax returns; and determining the timing and amount of impairments for investments. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties.\n\nIn 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. Based on the carrying amount of server and network equipment included in property and equipment, net as of June 30, 2022, the effect of this change in estimate for fiscal year 2023 was an increase in operating income of $3.7 billion and net income of $3.0 billion, or $0.40 per both basic and diluted share.\n\nForeign Currencies\n\nAssets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income.\n\nRevenue\n\nProduct Revenue and Service and Other Revenue\n\nProduct revenue includes sales from operating systems, cross-device productivity and collaboration applications, server applications, business solution applications, desktop and server management tools, software development tools, video games, and hardware such as PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.\n\nService and other revenue includes sales from cloud-based solutions that provide customers with software, services, platforms, and content such as Office 365, Azure, Dynamics 365, and Xbox; solution support; and consulting services. Service and other revenue also includes sales from online advertising and LinkedIn.\n\nRevenue Recognition\n\nRevenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.\n\nNature of Products and Services\n\nLicenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. In cases where we allocate revenue to software updates, primarily because the updates are provided at no additional charge, revenue is recognized as the updates are provided, which is generally ratably over the estimated life of the related device or license.\n\nCertain volume licensing programs, including Enterprise Agreements, include on-premises licenses combined with Software Assurance (“SA”). SA conveys rights to new software and upgrades released over the contract period and provides support, tools, and training to help customers deploy and use products more efficiently. On-premises licenses are considered distinct performance obligations when sold with SA. Revenue allocated to SA is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits, given that SA comprises distinct performance obligations that are satisfied over time.\n\nCloud services, which allow customers to use hosted software over the contract period without taking possession of the software, are provided on either a subscription or consumption basis. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract period. Revenue related to cloud services provided on a consumption basis, such as the amount of storage used in a period, is recognized based on the customer utilization of such resources. When cloud services require a significant level of integration and interdependency with software and the individual components are not considered distinct, all revenue is recognized over the period in which the cloud services are provided.\n\nRevenue from search advertising is recognized when the advertisement appears in the search results or when the action necessary to earn the revenue has been completed. Revenue from consulting services is recognized as services are provided.\n\nOur hardware is generally highly dependent on, and interrelated with, the underlying operating system and cannot function without the operating system. In these cases, the hardware and software license are accounted for as a single performance obligation and revenue is recognized at the point in time when ownership is transferred to resellers or directly to end customers through retail stores and online marketplaces.\n\nRefer to Note 19 – Segment Information and Geographic Data for further information, including revenue by significant product and service offering.\n\nSignificant Judgments\n\nOur contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided.\n\nJudgment is required to determine the SSP for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.\n\nIn instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.\n\nDue to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, including the exercise pattern of certain benefits across our portfolio of customers.\n\nOur products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our products and services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Changes to our estimated variable consideration were not material for the periods presented.\n\nContract Balances and Other Receivables\n\nTiming of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record a receivable related to revenue recognized for multi-year on-premises licenses as we have an unconditional right to invoice and receive payment in the future related to those licenses.\n\nUnearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include SA and cloud services. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for consulting services to be performed in the future, LinkedIn subscriptions, Office 365 subscriptions, Xbox subscriptions, Windows post-delivery support, Dynamics business solutions, and other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service.\n\nRefer to Note 13 – Unearned Revenue for further information, including unearned revenue by segment and changes in unearned revenue during the period.\n\nPayment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced annually with revenue recognized upfront.\n\nAs of June 30, 2023 and 2022, long-term accounts receivable, net of allowance for doubtful accounts, was $4.5 billion and $3.8 billion, respectively, and is included in other long-term assets in our consolidated balance sheets.\n\nThe allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.\n\nActivity in the allowance for doubtful accounts was as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nBalance, beginning of period\n$ 710\n\n$ 798\n\n$ 816\n\nCharged to costs and other\n258\n\n157\n\n234\n\nWrite-offs\n(252)\n\n(245)\n\n(252)\n\nBalance, end of period\n$ 716\n\n$ 710\n\n$ 798\n\nAllowance for doubtful accounts included in our consolidated balance sheets:\n\n(In millions)\n\nJune 30,\n2023\n\n2022\n\n2021\n\nAccounts receivable, net of allowance for doubtful accounts\n$ 650\n\n$ 633\n\n$ 751\n\nOther long-term assets\n66\n\n77\n\n47\n\nTotal\n$ 716\n\n$ 710\n\n$ 798\n\nAs of June 30, 2023 and 2022, other receivables related to activities to facilitate the purchase of server components were $9.2 billion and $6.1 billion, respectively, and are included in other current assets in our consolidated balance sheets.\n\nWe record financing receivables when we offer certain of our customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of June 30, 2023 and 2022, our financing receivables, net were $5.3 billion and $4.1 billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets. We record an allowance to cover expected losses based on troubled accounts, historical experience, and other currently available evidence.\n\nAssets Recognized from Costs to Obtain a Contract with a Customer\n\nWe recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets in our consolidated balance sheets.\n\nWe apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include our internal sales organization compensation program and certain partner sales incentive programs as we have determined annual compensation is commensurate with annual sales activities.\n\nCost of Revenue\n\nCost of revenue includes: manufacturing and distribution costs for products sold and programs licensed; operating costs related to product support service centers and product distribution centers; costs incurred to include software on PCs sold by original equipment manufacturers (“OEM”), to drive traffic to our websites, and to acquire online advertising space; costs incurred to support and maintain cloud-based and other online products and services, including datacenter costs and royalties; warranty costs; inventory valuation adjustments; costs associated with the delivery of consulting services; and the amortization of capitalized software development costs. Capitalized software development costs are amortized over the estimated lives of the products.\n\nProduct Warranty\n\nWe 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.\n\nResearch and Development\n\nResearch and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs and the amortization of purchased software code and services content. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products.\n\nSales and Marketing\n\nSales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs. Advertising costs are expensed as incurred. Advertising expense was $904 million, $1.5 billion, and $1.5 billion in fiscal years 2023, 2022, and 2021, respectively.\n\nStock-Based Compensation\n\nCompensation cost for stock awards, which include restricted stock units (“RSUs”) and performance stock units (“PSUs”), is measured at the fair value on the grant date and recognized as expense, net of estimated forfeitures, over the related service or performance period. The fair value of stock awards is based on the quoted price of our common stock on the grant date less the present value of expected dividends not received during the vesting period. We measure the fair value of PSUs using a Monte Carlo valuation model. Compensation cost for RSUs is recognized using the straight-line method and for PSUs is recognized using the accelerated method.\n\nCompensation expense for the employee stock purchase plan (“ESPP”) is measured as the discount the employee is entitled to upon purchase and is recognized in the period of purchase.\n\nEmployee Severance\n\nOn January 18, 2023, we announced a decision to reduce our overall workforce by approximately 10,000 jobs through the third quarter of fiscal year 2023. During the three months ended December 31, 2022, we recorded $800 million of employee severance expenses related to these job eliminations as part of an ongoing employee benefit plan. These employee severance expenses were incurred as part of a corporate program, and were included in general and administrative expenses in our consolidated income statements and allocated to our segments based on relative gross margin. Refer to Note 19 – Segment Information and Geographic Data for further information.\n\nIncome Taxes\n\nIncome tax expense includes U.S. and international income taxes, and interest and penalties on uncertain tax positions. Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. Deferred tax assets are reported net of a valuation allowance when it is more likely than not that a tax benefit will not be realized. All deferred income taxes are classified as long-term in our consolidated balance sheets.\n\nFinancial Instruments\n\nInvestments\n\nWe consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.\n\nDebt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in fair value, excluding credit losses and impairments, are recorded in other comprehensive income. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments.\n\nEquity investments with readily determinable fair values are measured at fair value. Equity investments without readily determinable fair values are measured using the equity method or measured at cost with adjustments for observable changes in price or impairments (referred to as the measurement alternative). We perform a qualitative assessment on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Changes in value are recorded in other income (expense), net.\n\nDerivatives\n\nDerivative instruments are recognized as either assets or liabilities and measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.\n\nFor derivative instruments designated as fair value hedges, gains and losses are recognized in other income (expense), net with offsetting gains and losses on the hedged items. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.\n\nFor derivative instruments designated as cash flow hedges, gains and losses are initially reported as a component of other comprehensive income and subsequently recognized in other income (expense), net with the corresponding hedged item. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.\n\nFor derivative instruments that are not designated as hedges, gains and losses from changes in fair values are primarily recognized in other income (expense), net.\n\nFair Value Measurements\n\nWe account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:\n\nLevel 1 –inputs are based upon unadjusted quoted prices for identical instruments in active markets. Our Level 1 investments include U.S. government securities, common and preferred stock, and mutual funds. Our Level 1 derivative assets and liabilities include those actively traded on exchanges.\n\nLevel 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit spreads, foreign exchange rates, and forward and spot prices for currencies. Our Level 2 investments include commercial paper, certificates of deposit, U.S. agency securities, foreign government bonds, mortgage- and asset-backed securities, corporate notes and bonds, and municipal securities. Our Level 2 derivative assets and liabilities include certain cleared swap contracts and over-the-counter forward, option, and swap contracts.\n\nLevel 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 assets and liabilities include investments in corporate notes and bonds, municipal securities, and goodwill and intangible assets, when they are recorded at fair value due to an impairment charge. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities.\n\nWe measure equity investments without readily determinable fair values on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections.\n\nOur other current financial assets and current financial liabilities have fair values that approximate their carrying values.\n\nInventories\n\nInventories 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.\n\nProperty and Equipment\n\nProperty and equipment is stated at cost less accumulated depreciation, and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: computer software developed or acquired for internal use, three years; computer equipment, two to six years; buildings and improvements, five to 15 years; leasehold improvements, three to 20 years; and furniture and equipment, one to 10 years. Land is not depreciated.\n\nLeases\n\nWe determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our consolidated balance sheets.\n\nROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.\n\nWe have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.\n\nGoodwill\n\nGoodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.\n\nIntangible Assets\n\nOur intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of benefit, ranging from one to 20 years. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.\n\nNOTE 2 — EARNINGS PER SHARE\n\nBasic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and stock awards.\n\nThe components of basic and diluted EPS were as follows:\n\n(In millions, except earnings per share)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nNet income available for common shareholders (A)\n$ 72,361\n\n$ 72,738\n\n$ 61,271\n\nWeighted average outstanding shares of common stock (B)\n7,446\n\n7,496\n\n7,547\n\nDilutive effect of stock-based awards\n26\n\n44\n\n61\n\nCommon stock and common stock equivalents (C)\n7,472\n\n7,540\n\n7,608\n\nEarnings Per Share\n\nBasic (A/B)\n$ 9.72\n\n$ 9.70\n\n$ 8.12\n\nDiluted (A/C)\n$ 9.68\n\n$ 9.65\n\n$ 8.05\n\nAnti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.\n\nNOTE 3 — OTHER INCOME (EXPENSE), NET\n\nThe components of other income (expense), net were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nInterest and dividends income\n$ 2,994\n\n$ 2,094\n\n$ 2,131\n\nInterest expense\n(1,968)\n\n(2,063)\n\n(2,346)\n\nNet recognized gains on investments\n260\n\n461\n\n1,232\n\nNet gains (losses) on derivatives\n(456)\n\n(52)\n\n17\n\nNet gains (losses) on foreign currency remeasurements\n181\n\n(75)\n\n54\n\nOther, net\n(223)\n\n(32)\n\n98\n\nTotal\n$ 788\n\n$ 333\n\n$ 1,186\n\nNet Recognized Gains (Losses) on Investments\n\nNet recognized gains (losses) on debt investments were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nRealized gains from sales of available-for-sale securities\n$ 36\n\n$ 162\n\n$ 105\n\nRealized losses from sales of available-for-sale securities\n(124)\n\n(138)\n\n(40)\n\nImpairments and allowance for credit losses\n(10)\n\n(81)\n\n(2)\n\nTotal\n$ (98)\n\n$ (57)\n\n$ 63\n\nNet recognized gains (losses) on equity investments were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nNet realized gains on investments sold\n$ 75\n\n$ 29\n\n$ 123\n\nNet unrealized gains on investments still held\n303\n\n509\n\n1,057\n\nImpairments of investments\n(20)\n\n(20)\n\n(11)\n\nTotal\n$ 358\n\n$ 518\n\n$ 1,169\n\nNOTE 4 — INVESTMENTS\n\nInvestment Components\n\nThe components of investments were as follows:\n\n(In millions)\nFair Value\n\nLevel\n\nAdjusted\n\nCost Basis\n\nUnrealized\n\nGains\n\nUnrealized\n\nLosses\n\nRecorded\n\nBasis\n\nCash\n\nand Cash\n\nEquivalents\n\nShort-term\n\nInvestments\n\nEquity\n\nInvestments\n\nJune 30, 2023\n\nChanges in Fair Value Recorded in Other Comprehensive Income\n\nCommercial paper\nLevel 2\n\n$ 16,589\n\n$ 0\n\n$ 0\n\n$ 16,589\n\n$ 12,231\n\n$ 4,358\n\n$ 0\n\nCertificates of deposit\nLevel 2\n\n2,701\n\n0\n\n0\n\n2,701\n\n2,657\n\n44\n\n0\n\nU.S. government securities\nLevel 1\n\n65,237\n\n2\n\n(3,870)\n\n61,369\n\n2,991\n\n58,378\n\n0\n\nU.S. agency securities\nLevel 2\n\n2,703\n\n0\n\n0\n\n2,703\n\n894\n\n1,809\n\n0\n\nForeign government bonds\nLevel 2\n\n498\n\n1\n\n(24)\n\n475\n\n0\n\n475\n\n0\n\nMortgage- and asset-backed securities\nLevel 2\n\n824\n\n1\n\n(39)\n\n786\n\n0\n\n786\n\n0\n\nCorporate notes and bonds\nLevel 2\n\n10,809\n\n8\n\n(583)\n\n10,234\n\n0\n\n10,234\n\n0\n\nCorporate notes and bonds\nLevel 3\n\n120\n\n0\n\n0\n\n120\n\n0\n\n120\n\n0\n\nMunicipal securities\nLevel 2\n\n285\n\n1\n\n(18)\n\n268\n\n7\n\n261\n\n0\n\nMunicipal securities\nLevel 3\n\n103\n\n0\n\n(16)\n\n87\n\n0\n\n87\n\n0\n\nTotal debt investments\n\n$ 99,869\n\n$ 13\n\n$ (4,550)\n\n$ 95,332\n\n$ 18,780\n\n$ 76,552\n\n$ 0\n\nChanges in Fair Value Recorded in Net Income\n\nEquity investments\nLevel 1\n\n$ 10,138\n\n$ 7,446\n\n$ 0\n\n$ 2,692\n\nEquity investments\nOther\n\n7,187\n\n0\n\n0\n\n7,187\n\nTotal equity investments\n\n$ 17,325\n\n$ 7,446\n\n$ 0\n\n$ 9,879\n\nCash\n\n$ 8,478\n\n$ 8,478\n\n$ 0\n\n$ 0\n\nDerivatives, net (a)\n\n6\n\n0\n\n6\n\n0\n\nTotal\n\n$ 121,141\n\n$ 34,704\n\n$ 76,558\n\n$ 9,879\n\n(In millions)\nFair Value\n\nLevel\n\nAdjusted\n\nCost Basis\n\nUnrealized\n\nGains\n\nUnrealized\n\nLosses\n\nRecorded\n\nBasis\n\nCash\n\nand Cash\n\nEquivalents\n\nShort-term\n\nInvestments\n\nEquity\n\nInvestments\n\nJune 30, 2022\n\nChanges in Fair Value Recorded in Other Comprehensive Income\n\nCommercial paper\nLevel 2\n\n$ 2,500\n\n$ 0\n\n$ 0\n\n$ 2,500\n\n$ 2,498\n\n$ 2\n\n$ 0\n\nCertificates of deposit\nLevel 2\n\n2,071\n\n0\n\n0\n\n2,071\n\n2,032\n\n39\n\n0\n\nU.S. government securities\nLevel 1\n\n79,696\n\n29\n\n(2,178)\n\n77,547\n\n9\n\n77,538\n\n0\n\nU.S. agency securities\nLevel 2\n\n419\n\n0\n\n(9)\n\n410\n\n0\n\n410\n\n0\n\nForeign government bonds\nLevel 2\n\n506\n\n0\n\n(24)\n\n482\n\n0\n\n482\n\n0\n\nMortgage- and asset-backed securities\nLevel 2\n\n727\n\n1\n\n(30)\n\n698\n\n0\n\n698\n\n0\n\nCorporate notes and bonds\nLevel 2\n\n11,661\n\n4\n\n(554)\n\n11,111\n\n0\n\n11,111\n\n0\n\nCorporate notes and bonds\nLevel 3\n\n67\n\n0\n\n0\n\n67\n\n0\n\n67\n\n0\n\nMunicipal securities\nLevel 2\n\n368\n\n19\n\n(13)\n\n374\n\n0\n\n374\n\n0\n\nMunicipal securities\nLevel 3\n\n103\n\n0\n\n(6)\n\n97\n\n0\n\n97\n\n0\n\nTotal debt investments\n\n$ 98,118\n\n$ 53\n\n$ (2,814)\n\n$ 95,357\n\n$ 4,539\n\n$ 90,818\n\n$ 0\n\nChanges in Fair Value Recorded in Net Income\n\nEquity investments\nLevel 1\n\n$ 1,590\n\n$ 1,134\n\n$ 0\n\n$ 456\n\nEquity investments\nOther\n\n6,435\n\n0\n\n0\n\n6,435\n\nTotal equity investments\n\n$ 8,025\n\n$ 1,134\n\n$ 0\n\n$ 6,891\n\nCash\n\n$ 8,258\n\n$ 8,258\n\n$ 0\n\n$ 0\n\nDerivatives, net (a)\n\n8\n\n0\n\n8\n\n0\n\nTotal\n\n$ 111,648\n\n$ 13,931\n\n$ 90,826\n\n$ 6,891\n\nRefer to Note 5 – Derivatives for further information on the fair value of our derivative instruments.\n\nEquity investments presented as “Other” in the tables above include investments without readily determinable fair values measured using the equity method or measured at cost with adjustments for observable changes in price or impairments, and investments measured at fair value using net asset value as a practical expedient which are not categorized in the fair value hierarchy. As of June 30, 2023 and 2022, equity investments without readily determinable fair values measured at cost with adjustments for observable changes in price or impairments were $4.2 billion and $3.8 billion, respectively.\n\nUnrealized Losses on Debt Investments\n\nDebt investments with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair values were as follows:\n\nLess than 12 Months\n\n12 Months or Greater\n\nTotal\n\nUnrealized\n\nLosses\n\n(In millions)\nFair Value\n\nUnrealized\n\nLosses\n\nFair Value\n\nUnrealized\n\nLosses\n\nTotal\n\nFair Value\n\nJune 30, 2023\n\nU.S. government and agency securities\n$ 7,950\n\n$ (336)\n\n$ 45,273\n\n$ (3,534)\n\n$ 53,223\n\n$ (3,870)\n\nForeign government bonds\n77\n\n(5)\n\n391\n\n(19)\n\n468\n\n(24)\n\nMortgage- and asset-backed securities\n257\n\n(5)\n\n412\n\n(34)\n\n669\n\n(39)\n\nCorporate notes and bonds\n2,326\n\n(49)\n\n7,336\n\n(534)\n\n9,662\n\n(583)\n\nMunicipal securities\n111\n\n(3)\n\n186\n\n(31)\n\n297\n\n(34)\n\nTotal\n$ 10,721\n\n$ (398)\n\n$ 53,598\n\n$ (4,152)\n\n$ 64,319\n\n$ (4,550)\n\nLess than 12 Months\n\n12 Months or Greater\n\nTotal\n\nUnrealized\n\nLosses\n\n(In millions)\nFair Value\n\nUnrealized\n\nLosses\n\nFair Value\n\nUnrealized\n\nLosses\n\nTotal\n\nFair Value\n\nJune 30, 2022\n\nU.S. government and agency securities\n$ 59,092\n\n$ (1,835)\n\n$ 2,210\n\n$ (352)\n\n$ 61,302\n\n$ (2,187)\n\nForeign government bonds\n418\n\n(18)\n\n27\n\n(6)\n\n445\n\n(24)\n\nMortgage- and asset-backed securities\n510\n\n(26)\n\n41\n\n(4)\n\n551\n\n(30)\n\nCorporate notes and bonds\n9,443\n\n(477)\n\n786\n\n(77)\n\n10,229\n\n(554)\n\nMunicipal securities\n178\n\n(12)\n\n74\n\n(7)\n\n252\n\n(19)\n\nTotal\n$ 69,641\n\n$ (2,368)\n\n$ 3,138\n\n$ (446)\n\n$ 72,779\n\n$ (2,814)\n\nUnrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Management does not believe any remaining unrealized losses represent impairments based on our evaluation of available evidence.\n\nDebt Investment Maturities\n\n(In millions)\nAdjusted\n\nCost Basis\n\nEstimated\n\nFair Value\n\nJune 30, 2023\n\nDue in one year or less\n$ 38,182\n\n$ 38,048\n\nDue after one year through five years\n47,127\n\n44,490\n\nDue after five years through 10 years\n13,262\n\n11,628\n\nDue after 10 years\n1,298\n\n1,166\n\nTotal\n$ 99,869\n\n$ 95,332\n\nNOTE 5 — DERIVATIVES\n\nWe use derivative instruments to manage risks related to foreign currencies, interest rates, equity prices, and credit; to enhance investment returns; and to facilitate portfolio diversification. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment.\n\nForeign Currencies\n\nCertain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency hedge positions.\n\nForeign 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. Foreign currency risks related to certain Euro-denominated debt are hedged using foreign exchange forward contracts that are designated as cash flow hedging instruments.\n\nCertain options and forwards not designated as hedging instruments are also used to manage the variability in foreign exchange rates on certain balance sheet amounts and to manage other foreign currency exposures.\n\nInterest Rate\n\nInterest rate risks related to certain fixed-rate debt are hedged using interest rate swaps that are designated as fair value hedging instruments to effectively convert the fixed interest rates to floating interest rates.\n\nSecurities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We manage the average maturity of our fixed-income portfolio to achieve economic returns that correlate to certain broad-based fixed-income indices using option, futures, and swap contracts. These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below.\n\nEquity\n\nSecurities held in our equity investments portfolio are subject to market price risk. At times, we may hold options, futures, and swap contracts. These contracts are not designated as hedging instruments.\n\nCredit\n\nOur fixed-income portfolio is diversified and consists primarily of investment-grade securities. We use credit default swap contracts to manage credit exposures relative to broad-based indices and to facilitate portfolio diversification. These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below.\n\nCredit-Risk-Related Contingent Features\n\nCertain of our counterparty agreements for derivative instruments contain provisions that require our issued and outstanding long-term unsecured debt to maintain an investment grade credit rating and require us to maintain minimum liquidity of $1.0 billion. To the extent we fail to meet these requirements, we will be required to post collateral, similar to the standard convention related to over-the-counter derivatives. As of June 30, 2023, our long-term unsecured debt rating was AAA, and cash investments were in excess of $1.0 billion. As a result, no collateral was required to be posted.\n\nThe following table presents the notional amounts of our outstanding derivative instruments measured in U.S. dollar equivalents:\n\n(In millions)\nJune 30,\n\n2023\n\nJune 30,\n\n2022\n\nDesignated as Hedging Instruments\n\nForeign exchange contracts purchased\n$ 1,492\n\n$ 635\n\nInterest rate contracts purchased\n1,078\n\n1,139\n\nNot Designated as Hedging Instruments\n\nForeign exchange contracts purchased\n7,874\n\n10,322\n\nForeign exchange contracts sold\n25,159\n\n21,606\n\nEquity contracts purchased\n3,867\n\n1,131\n\nEquity contracts sold\n2,154\n\n0\n\nOther contracts purchased\n1,224\n\n1,642\n\nOther contracts sold\n581\n\n544\n\nFair Values of Derivative Instruments\n\nThe following table presents our derivative instruments:\n\n(In millions)\nDerivative\n\nAssets\n\nDerivative\n\nLiabilities\n\nDerivative\n\nAssets\n\nDerivative\n\nLiabilities\n\nJune 30,\n\n2023\n\nJune 30,\n\n2022\n\nDesignated as Hedging Instruments\n\nForeign exchange contracts\n$ 34\n\n$ (67)\n\n$ 0\n\n$ (77)\n\nInterest rate contracts\n16\n\n0\n\n3\n\n0\n\nNot Designated as Hedging Instruments\n\nForeign exchange contracts\n249\n\n(332)\n\n333\n\n(362)\n\nEquity contracts\n165\n\n(400)\n\n5\n\n(95)\n\nOther contracts\n5\n\n(6)\n\n15\n\n(17)\n\nGross amounts of derivatives\n469\n\n(805)\n\n356\n\n(551)\n\nGross amounts of derivatives offset in the balance sheet\n(202)\n\n206\n\n(130)\n\n133\n\nCash collateral received\n0\n\n(125)\n\n0\n\n(75)\n\nNet amounts of derivatives\n$ 267\n\n$ (724)\n\n$ 226\n\n$ (493)\n\nReported as\n\nShort-term investments\n$ 6\n\n$ 0\n\n$ 8\n\n$ 0\n\nOther current assets\n245\n\n0\n\n218\n\n0\n\nOther long-term assets\n16\n\n0\n\n0\n\n0\n\nOther current liabilities\n0\n\n(341)\n\n0\n\n(298)\n\nOther long-term liabilities\n0\n\n(383)\n\n0\n\n(195)\n\nTotal\n$ 267\n\n$ (724)\n\n$ 226\n\n$ (493)\n\nGross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected to offset were $442 million and $804 million, respectively, as of June 30, 2023, and $343 million and $550 million, respectively, as of June 30, 2022.\n\nThe following table presents the fair value of our derivatives instruments on a gross basis:\n\n(In millions)\nLevel 1\n\nLevel 2\n\nLevel 3\n\nTotal\n\nJune 30, 2023\n\nDerivative assets\n$ 0\n\n$ 462\n\n$ 7\n\n$ 469\n\nDerivative liabilities\n0\n\n(805)\n\n0\n\n(805)\n\nJune 30, 2022\n\nDerivative assets\n1\n\n349\n\n6\n\n356\n\nDerivative liabilities\n0\n\n(551)\n\n0\n\n(551)\n\nGains (losses) on derivative instruments recognized in other income (expense), net were as follows:\n\n(In millions)\n\nYear Ended June 30,\n\n2023\n\n2022\n\n2021\n\nDesignated as Fair Value Hedging Instruments\n\nForeign exchange contracts\n\nDerivatives\n\n$ 0\n\n$ 49\n\n$ 193\n\nHedged items\n\n0\n\n(50)\n\n(188)\n\nExcluded from effectiveness assessment\n\n0\n\n4\n\n30\n\nInterest rate contracts\n\nDerivatives\n\n(65)\n\n(92)\n\n(37)\n\nHedged items\n\n38\n\n108\n\n53\n\nDesignated as Cash Flow Hedging Instruments\n\nForeign exchange contracts\n\nAmount reclassified from accumulated other comprehensive income\n\n61\n\n(79)\n\n17\n\nNot Designated as Hedging Instruments\n\nForeign exchange contracts\n\n(73)\n\n383\n\n27\n\nEquity contracts\n\n(420)\n\n13\n\n(6)\n\nOther contracts\n\n(41)\n\n(85)\n\n15\n\nGains (losses), net of tax, on derivative instruments recognized in our consolidated comprehensive income statements were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nDesignated as Cash Flow Hedging Instruments\n\nForeign exchange contracts\n\nIncluded in effectiveness assessment\n$ 34\n\n$ (57)\n\n$ 34\n\nNOTE 6 — INVENTORIES\n\nThe components of inventories were as follows:\n\n(In millions)\n\nJune 30,\n\n2023\n\n2022\n\nRaw materials\n\n$ 709\n\n$ 1,144\n\nWork in process\n\n23\n\n82\n\nFinished goods\n\n1,768\n\n2,516\n\nTotal\n\n$ 2,500\n\n$ 3,742\n\nNOTE 7 — PROPERTY AND EQUIPMENT\n\nThe components of property and equipment were as follows:\n\n(In millions)\n\nJune 30,\n2023\n\n2022\n\nLand\n$ 5,683\n\n$ 4,734\n\nBuildings and improvements\n68,465\n\n55,014\n\nLeasehold improvements\n8,537\n\n7,819\n\nComputer equipment and software\n74,961\n\n60,631\n\nFurniture and equipment\n6,246\n\n5,860\n\nTotal, at cost\n163,892\n\n134,058\n\nAccumulated depreciation\n(68,251)\n\n(59,660)\n\nTotal, net\n$ 95,641\n\n$ 74,398\n\nDuring fiscal years 2023, 2022, and 2021, depreciation expense was $11.0 billion, $12.6 billion, and $9.3 billion, respectively. Depreciation expense declined in fiscal year 2023 due to the change in estimated useful lives of our server and network equipment.\n\nAs of June 30, 2023, we have committed $13.5 billion for the construction of new buildings, building improvements, and leasehold improvements, primarily related to datacenters.\n\nNOTE 8 — BUSINESS COMBINATIONS\n\nNuance Communications, Inc.\n\nOn March 4, 2022, we completed our acquisition of Nuance Communications, Inc. (“Nuance”) for a total purchase price of $18.8 billion, consisting primarily of cash. Nuance is a cloud and artificial intelligence (“AI”) software provider with healthcare and enterprise AI experience, and the acquisition will build on our industry-specific cloud offerings. The financial results of Nuance have been included in our consolidated financial statements since the date of the acquisition. Nuance is reported as part of our Intelligent Cloud segment.\n\nThe allocation of the purchase price to goodwill was completed as of December 31, 2022. The major classes of assets and liabilities to which we have allocated the purchase price were as follows:\n\n(In millions)\n\nGoodwill (a)\n\n$ 16,326\n\nIntangible assets\n\n4,365\n\nOther assets\n\n42\n\nOther liabilities (b)\n\n(1,972)\n\nTotal\n\n$ 18,761\n\nGoodwill was assigned to our Intelligent Cloud segment and was primarily attributed to increased synergies that are expected to be achieved from the integration of Nuance. None of the goodwill is expected to be deductible for income tax purposes.\n\nIncludes $986 million of convertible senior notes issued by Nuance in 2015 and 2017, substantially all of which have been redeemed.\n\nFollowing are the details of the purchase price allocated to the intangible assets acquired:\n\n(In millions, except average life)\nAmount\n\nWeighted\n\nAverage Life\n\nCustomer-related\n$ 2,610\n\n9 years\n\nTechnology-based\n1,540\n\n5 years\n\nMarketing-related\n215\n\n4 years\n\nTotal\n$ 4,365\n\n7 years\n\nZeniMax Media Inc.\n\nOn March 9, 2021, we completed our acquisition of ZeniMax Media Inc. (“ZeniMax”), the parent company of Bethesda Softworks LLC (“Bethesda”), for a total purchase price of $8.1 billion, consisting primarily of cash. The purchase price included $766 million of cash and cash equivalents acquired. Bethesda is one of the largest, privately held game developers and publishers in the world, and brings a broad portfolio of games, technology, and talent to Xbox. The financial results of ZeniMax have been included in our consolidated financial statements since the date of the acquisition. ZeniMax is reported as part of our More Personal Computing segment.\n\nThe allocation of the purchase price to goodwill was completed as of December 31, 2021. The major classes of assets and liabilities to which we have allocated the purchase price were as follows:\n\n(In millions)\n\nCash and cash equivalents\n$ 766\n\nGoodwill\n5,510\n\nIntangible assets\n1,968\n\nOther assets\n121\n\nOther liabilities\n(244)\n\nTotal\n$ 8,121\n\nGoodwill was assigned to our More Personal Computing segment. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of ZeniMax. None of the goodwill is expected to be deductible for income tax purposes.\n\nFollowing are details of the purchase price allocated to the intangible assets acquired:\n\n(In millions, except average life)\nAmount\n\nWeighted\n\nAverage Life\n\nTechnology-based\n$ 1,341\n\n4 years\n\nMarketing-related\n627\n\n11 years\n\nTotal\n$ 1,968\n\n6 years\n\nActivision Blizzard, Inc.\n\nOn January 18, 2022, we entered into a definitive agreement to acquire Activision Blizzard, Inc. (“Activision Blizzard”) for $95.00 per share in an all-cash transaction valued at $68.7 billion, inclusive of Activision Blizzard’s net cash. Activision Blizzard is a leader in game development and an interactive entertainment content publisher. The acquisition will accelerate the growth in our gaming business across mobile, PC, console, and cloud gaming. The acquisition has been approved by Activision Blizzard’s shareholders. We continue to work toward closing the transaction subject to obtaining required regulatory approvals and satisfaction of other customary closing conditions. Microsoft and Activision Blizzard have jointly agreed to extend the merger agreement through October 18, 2023 to allow for additional time to resolve remaining regulatory concerns.\n\nNOTE 9 — GOODWILL\n\nChanges in the carrying amount of goodwill were as follows:\n\n(In millions)\nJune 30,\n\n2021\n\nAcquisitions\n\nOther\n\nJune 30,\n\n2022\n\nAcquisitions\n\nOther\n\nJune 30,\n\n2023\n\nProductivity and Business Processes\n$ 24,317\n\n$ 599\n\n$ (105)\n\n$ 24,811\n\n$ 11\n\n$ (47)\n\n$ 24,775\n\nIntelligent Cloud\n13,256\n\n16,879\n\n47\n\n30,182\n\n223\n\n64\n\n30,469\n\nMore Personal Computing\n12,138\n\n648\n\n(255)\n\n12,531\n\n0\n\n111\n\n12,642\n\nTotal\n$ 49,711\n\n$ 18,126\n\n$ (313)\n\n$ 67,524\n\n$ 234\n\n$ 128\n\n$ 67,886\n\nThe measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months. Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.\n\nAny change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are presented as “Other” in the table above. Also included in “Other” are business dispositions and transfers between segments due to reorganizations, as applicable.\n\nGoodwill Impairment\n\nWe test goodwill for impairment annually on May 1 at the reporting unit level, primarily using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital. We believe use of a discounted cash flow approach is the most reliable indicator of the fair values of the businesses.\n\nNo instances of impairment were identified in our May 1, 2023, May 1, 2022, or May 1, 2021 tests. As of June 30, 2023 and 2022, accumulated goodwill impairment was $11.3 billion.\n\nNOTE 10 — INTANGIBLE ASSETS\n\nThe components of intangible assets, all of which are finite-lived, were as follows:\n\n(In millions)\nGross\n\nCarrying\n\nAmount\n\nAccumulated\n\nAmortization\n\nNet Carrying\n\nAmount\n\nGross\n\nCarrying\n\nAmount\n\nAccumulated\n\nAmortization\n\nNet Carrying\n\nAmount\n\nJune 30,\n\n2023\n\n2022\n\nTechnology-based\n$ 11,245\n\n$ (7,589)\n\n$ 3,656\n\n$ 11,277\n\n$ (6,958)\n\n$ 4,319\n\nCustomer-related\n7,281\n\n(4,047)\n\n3,234\n\n7,342\n\n(3,171)\n\n4,171\n\nMarketing-related\n4,935\n\n(2,473)\n\n2,462\n\n4,942\n\n(2,143)\n\n2,799\n\nContract-based\n29\n\n(15)\n\n14\n\n16\n\n(7)\n\n9\n\nTotal\n$ 23,490\n\n$ (14,124)\n\n$ 9,366\n\n$ 23,577\n\n$ (12,279)\n\n$ 11,298\n\nNo material impairments of intangible assets were identified during fiscal years 2023, 2022, or 2021. We estimate that we have no significant residual value related to our intangible assets.\n\nThe components of intangible assets acquired during the periods presented were as follows:\n\n(In millions)\n\nAmount\nWeighted\n\nAverage Life\n\nAmount\nWeighted\n\nAverage Life\n\nYear Ended June 30,\n\n2023\n\n2022\n\nTechnology-based\n\n$ 522\n7 years\n\n$ 2,611\n4 years\n\nCustomer-related\n\n0\n0 years\n\n2,837\n9 years\n\nMarketing-related\n\n7\n5 years\n\n233\n4 years\n\nContract-based\n\n12\n3 years\n\n0\n0 years\n\nTotal\n\n$ 541\n6 years\n\n$ 5,681\n7 years\n\nIntangible assets amortization expense was $2.5 billion, $2.0 billion, and $1.6 billion for fiscal years 2023, 2022, and 2021, respectively.\n\nThe following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2023:\n\n(In millions)\n\nYear Ending June 30,\n\n2024\n$ 2,363\n\n2025\n1,881\n\n2026\n1,381\n\n2027\n929\n\n2028\n652\n\nThereafter\n2,160\n\nTotal\n$ 9,366\n\nNOTE 11 — DEBT\n\nThe components of debt were as follows:\n\n(In millions, issuance by calendar year)\nMaturities\n\n(calendar year)\n\nStated Interest\n\nRate\n\nEffective Interest\n\nRate\n\nJune 30,\n\n2023\n\nJune 30,\n\n2022\n\n2009 issuance of $3.8 billion\n2039\n\n5.20%\n\n5.24%\n\n$ 520\n\n$ 520\n\n2010 issuance of $4.8 billion\n2040\n\n4.50%\n\n4.57%\n\n486\n\n486\n\n2011 issuance of $2.3 billion\n2041\n\n5.30%\n\n5.36%\n\n718\n\n718\n\n2012 issuance of $2.3 billion\n2042\n\n3.50%\n\n3.57%\n\n454\n\n1,204\n\n2013 issuance of $5.2 billion\n2023–2043\n\n3.63%–4.88%\n\n3.73%–4.92%\n\n1,814\n\n2,814\n\n2013 issuance of €4.1 billion\n2028–2033\n\n2.63%–3.13%\n\n2.69%–3.22%\n\n2,509\n\n2,404\n\n2015 issuance of $23.8 billion\n2025–2055\n\n2.70%–4.75%\n\n2.77%–4.78%\n\n9,805\n\n10,805\n\n2016 issuance of $19.8 billion\n2023–2056\n\n2.00%–3.95%\n\n2.10%–4.03%\n\n9,430\n\n9,430\n\n2017 issuance of $17.0 billion\n2024–2057\n\n2.88%–4.50%\n\n3.04%–4.53%\n\n8,945\n\n8,945\n\n2020 issuance of $10.0 billion\n2050–2060\n\n2.53%–2.68%\n\n2.53%–2.68%\n\n10,000\n\n10,000\n\n2021 issuance of $8.2 billion\n2052–2062\n\n2.92%–3.04%\n\n2.92%–3.04%\n\n8,185\n\n8,185\n\nTotal face value\n52,866\n\n55,511\n\nUnamortized discount and issuance costs\n(438)\n\n(471)\n\nHedge fair value adjustments (a)\n(106)\n\n(68)\n\nPremium on debt exchange\n(5,085)\n\n(5,191)\n\nTotal debt\n47,237\n\n49,781\n\nCurrent portion of long-term debt\n(5,247)\n\n(2,749)\n\nLong-term debt\n$ 41,990\n\n$ 47,032\n\nRefer to Note 5 – Derivatives for further information on the interest rate swaps related to fixed-rate debt.\n\nAs of June 30, 2023 and 2022, the estimated fair value of long-term debt, including the current portion, was $46.2 billion and $50.9 billion, respectively. The estimated fair values are based on Level 2 inputs.\n\nDebt in the table above is comprised of senior unsecured obligations and ranks equally with our other outstanding obligations. Interest is paid semi-annually, except for the Euro-denominated debt, which is paid annually. Cash paid for interest on our debt for fiscal years 2023, 2022, and 2021 was $1.7 billion, $1.9 billion, and $2.0 billion, respectively.\n\nThe following table outlines maturities of our long-term debt, including the current portion, as of June 30, 2023:\n\n(In millions)\n\nYear Ending June 30,\n\n2024\n$ 5,250\n\n2025\n2,250\n\n2026\n3,000\n\n2027\n8,000\n\n2028\n0\n\nThereafter\n34,366\n\nTotal\n$ 52,866\n\nNOTE 12 — INCOME TAXES\n\nProvision for Income Taxes\n\nThe components of the provision for income taxes were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nCurrent Taxes\n\nU.S. federal\n$ 14,009\n\n$ 8,329\n\n$ 3,285\n\nU.S. state and local\n2,322\n\n1,679\n\n1,229\n\nForeign\n6,678\n\n6,672\n\n5,467\n\nCurrent taxes\n$ 23,009\n\n$ 16,680\n\n$ 9,981\n\nDeferred Taxes\n\nU.S. federal\n$ (6,146)\n\n$ (4,815)\n\n$ 25\n\nU.S. state and local\n(477)\n\n(1,062)\n\n(204)\n\nForeign\n564\n\n175\n\n29\n\nDeferred taxes\n$ (6,059)\n\n$ (5,702)\n\n$ (150)\n\nProvision for income taxes\n$ 16,950\n\n$ 10,978\n\n$ 9,831\n\nU.S. and foreign components of income before income taxes were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nU.S.\n$ 52,917\n\n$ 47,837\n\n$ 34,972\n\nForeign\n36,394\n\n35,879\n\n36,130\n\nIncome before income taxes\n$ 89,311\n\n$ 83,716\n\n$ 71,102\n\nEffective Tax Rate\n\nThe items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate were as follows:\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nFederal statutory rate\n21.0%\n\n21.0%\n\n21.0%\n\nEffect of:\n\nForeign earnings taxed at lower rates\n(1.8)%\n\n(1.3)%\n\n(2.7)%\n\nImpact of intangible property transfers\n0%\n\n(3.9)%\n\n0%\n\nForeign-derived intangible income deduction\n(1.3)%\n\n(1.1)%\n\n(1.3)%\n\nState income taxes, net of federal benefit\n1.6%\n\n1.4%\n\n1.4%\n\nResearch and development credit\n(1.1)%\n\n(0.9)%\n\n(0.9)%\n\nExcess tax benefits relating to stock-based compensation\n(0.7)%\n\n(1.9)%\n\n(2.4)%\n\nInterest, net\n0.8%\n\n0.5%\n\n0.5%\n\nOther reconciling items, net\n0.5%\n\n(0.7)%\n\n(1.8)%\n\nEffective rate\n19.0%\n\n13.1%\n\n13.8%\n\nIn the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico subsidiary to the U.S. The transfer of intangible properties resulted in a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022, as the value of future U.S. tax deductions exceeded the current tax liability from the U.S. global intangible low-taxed income (“GILTI”) tax.\n\nWe have historically paid India withholding taxes on software sales through distributor withholding and tax audit assessments in India. In March 2021, the India Supreme Court ruled favorably in the case of Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax for companies in 86 separate appeals, some dating back to 2012, holding that software sales are not subject to India withholding taxes. Although we were not a party to the appeals, our software sales in India were determined to be not subject to withholding taxes. Therefore, we recorded a net income tax benefit of $620 million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision impacting fiscal year 1996 through fiscal year 2016.\n\nThe decrease from the federal statutory rate in fiscal year 2023 is primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland. The decrease from the federal statutory rate in fiscal year 2022 is primarily due to the net income tax benefit related to the transfer of intangible properties, earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland, and tax benefits relating to stock-based compensation. The decrease from the federal statutory rate in fiscal year 2021 is primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland and Puerto Rico, tax benefits relating to stock-based compensation, and tax benefits from the India Supreme Court decision on withholding taxes. In fiscal year 2023, our foreign regional operating center in Ireland, which is taxed at a rate lower than the U.S. rate, generated 81% of our foreign income before tax. In fiscal years 2022 and 2021, our foreign regional operating centers in Ireland and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated 71% and 82% of our foreign income before tax. Other reconciling items, net consists primarily of tax credits and GILTI tax, and in fiscal year 2021, includes tax benefits from the India Supreme Court decision on withholding taxes. In fiscal years 2023, 2022, and 2021, there were no individually significant other reconciling items.\n\nThe increase in our effective tax rate for fiscal year 2023 compared to fiscal year 2022 was primarily due to a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of intangible properties and a decrease in tax benefits relating to stock-based compensation. The decrease in our effective tax rate for fiscal year 2022 compared to fiscal year 2021 was primarily due to a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of intangible properties, offset in part by changes in the mix of our income before income taxes between the U.S. and foreign countries, as well as tax benefits in the prior year from the India Supreme Court decision on withholding taxes, an agreement between the U.S. and India tax authorities related to transfer pricing, and final Tax Cuts and Jobs Act (“TCJA”) regulations.\n\nThe components of the deferred income tax assets and liabilities were as follows:\n\n(In millions)\n\nJune 30,\n2023\n\n2022\n\nDeferred Income Tax Assets\n\nStock-based compensation expense\n$ 681\n\n$ 601\n\nAccruals, reserves, and other expenses\n3,131\n\n2,874\n\nLoss and credit carryforwards\n1,441\n\n1,546\n\nAmortization (a)\n9,440\n\n10,183\n\nLeasing liabilities\n5,041\n\n4,557\n\nUnearned revenue\n3,296\n\n2,876\n\nBook/tax basis differences in investments and debt\n373\n\n0\n\nCapitalized research and development (a)\n6,958\n\n473\n\nOther\n489\n\n461\n\nDeferred income tax assets\n30,850\n\n23,571\n\nLess valuation allowance\n(939)\n\n(1,012)\n\nDeferred income tax assets, net of valuation allowance\n$ 29,911\n\n$ 22,559\n\nDeferred Income Tax Liabilities\n\nBook/tax basis differences in investments and debt\n$ 0\n\n$ (174)\n\nLeasing assets\n(4,680)\n\n(4,291)\n\nDepreciation\n(2,674)\n\n(1,602)\n\nDeferred tax on foreign earnings\n(2,738)\n\n(3,104)\n\nOther\n(89)\n\n(103)\n\nDeferred income tax liabilities\n$ (10,181)\n\n$ (9,274)\n\nNet deferred income tax assets\n$ 19,730\n\n$ 13,285\n\nReported As\n\nOther long-term assets\n$ 20,163\n\n$ 13,515\n\nLong-term deferred income tax liabilities\n(433)\n\n(230)\n\nNet deferred income tax assets\n$ 19,730\n\n$ 13,285\n\nProvisions enacted in the TCJA related to the capitalization for tax purposes of research and development expenditures became effective on July 1, 2022. These provisions require us to capitalize research and development expenditures and amortize them on our U.S. tax return over five or fifteen years, depending on where research is conducted.\n\nDeferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or recovered.\n\nAs of June 30, 2023, we had federal, state, and foreign net operating loss carryforwards of $509 million, $1.2 billion, and $2.3 billion, respectively. The federal and state net operating loss carryforwards have varying expiration dates ranging from fiscal year 2024 to 2043 or indefinite carryforward periods, if not utilized. The majority of our foreign net operating loss carryforwards do not expire. Certain acquired net operating loss carryforwards are subject to an annual limitation but are expected to be realized with the exception of those which have a valuation allowance. As of June 30, 2023, we had $456 million federal capital loss carryforwards for U.S. tax purposes from our acquisition of Nuance. The federal capital loss carryforwards are subject to an annual limitation and will expire in fiscal year 2025.\n\nThe valuation allowance disclosed in the table above relates to the foreign net operating loss carryforwards, federal capital loss carryforwards, and other net deferred tax assets that may not be realized.\n\nIncome taxes paid, net of refunds, were $23.1 billion, $16.0 billion, and $13.4 billion in fiscal years 2023, 2022, and 2021, respectively.\n\nUncertain Tax Positions\n\nGross unrecognized tax benefits related to uncertain tax positions as of June 30, 2023, 2022, and 2021, were $17.1 billion, $15.6 billion, and $14.6 billion, respectively, which were primarily included in long-term income taxes in our consolidated balance sheets. If recognized, the resulting tax benefit would affect our effective tax rates for fiscal years 2023, 2022, and 2021 by $14.4 billion, $13.3 billion, and $12.5 billion, respectively.\n\nAs of June 30, 2023, 2022, and 2021, we had accrued interest expense related to uncertain tax positions of $5.2 billion, $4.3 billion, and $4.3 billion, respectively, net of income tax benefits. The provision for income taxes for fiscal years 2023, 2022, and 2021 included interest expense related to uncertain tax positions of $918 million, $36 million, and $274 million, respectively, net of income tax benefits.\n\nThe aggregate changes in the gross unrecognized tax benefits related to uncertain tax positions were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nBeginning unrecognized tax benefits\n$ 15,593\n\n$ 14,550\n\n$ 13,792\n\nDecreases related to settlements\n(329)\n\n(317)\n\n(195)\n\nIncreases for tax positions related to the current year\n1,051\n\n1,145\n\n790\n\nIncreases for tax positions related to prior years\n870\n\n461\n\n461\n\nDecreases for tax positions related to prior years\n(60)\n\n(246)\n\n(297)\n\nDecreases due to lapsed statutes of limitations\n(5)\n\n0\n\n(1)\n\nEnding unrecognized tax benefits\n$ 17,120\n\n$ 15,593\n\n$ 14,550\n\nWe settled a portion of the Internal Revenue Service (“IRS”) audit for tax years 2004 to 2006 in fiscal year 2011. In February 2012, the IRS withdrew its 2011 Revenue Agents Report related to unresolved issues for tax years 2004 to 2006 and reopened the audit phase of the examination. We also settled a portion of the IRS audit for tax years 2007 to 2009 in fiscal year 2016, and a portion of the IRS audit for tax years 2010 to 2013 in fiscal year 2018. In the second quarter of fiscal year 2021, we settled an additional portion of the IRS audits for tax years 2004 to 2013 and made a payment of $1.7 billion, including tax and interest. We remain under audit for tax years 2004 to 2017.\n\nAs of June 30, 2023, the primary unresolved issues for the IRS audits relate to transfer pricing, which could have a material impact in our consolidated financial statements when the matters are resolved. We believe our allowances for income tax contingencies are adequate. We have not received a proposed assessment for the unresolved key transfer pricing issues. We do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months.\n\nWe are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years 1996 to 2022, some of which are currently under audit by local tax authorities. The resolution of each of these audits is not expected to be material to our consolidated financial statements.\n\nNOTE 13 — UNEARNED REVENUE\n\nUnearned revenue by segment was as follows:\n\n(In millions)\n\nJune 30,\n2023\n\n2022\n\nProductivity and Business Processes\n$ 27,572\n\n$ 24,558\n\nIntelligent Cloud\n21,563\n\n19,371\n\nMore Personal Computing\n4,678\n\n4,479\n\nTotal\n$ 53,813\n\n$ 48,408\n\nChanges in unearned revenue were as follows:\n\n(In millions)\n\nYear Ended June 30, 2023\n\nBalance, beginning of period\n\n$ 48,408\n\nDeferral of revenue\n\n123,935\n\nRecognition of unearned revenue\n\n(118,530)\n\nBalance, end of period\n\n$ 53,813\n\nRevenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $229 billion as of June 30, 2023, of which $224 billion is related to the commercial portion of revenue. We expect to recognize approximately 45% of this revenue over the next 12 months and the remainder thereafter.\n\nNOTE 14 — LEASES\n\nWe have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. Our leases have remaining lease terms of less than 1 year to 18 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.\n\nThe components of lease expense were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nOperating lease cost\n$ 2,875\n\n$ 2,461\n\n$ 2,127\n\nFinance lease cost:\n\nAmortization of right-of-use assets\n$ 1,352\n\n$ 980\n\n$ 921\n\nInterest on lease liabilities\n501\n\n429\n\n386\n\nTotal finance lease cost\n$ 1,853\n\n$ 1,409\n\n$ 1,307\n\nSupplemental cash flow information related to leases was as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nCash paid for amounts included in the measurement of lease liabilities:\n\nOperating cash flows from operating leases\n$ 2,706\n\n$ 2,368\n\n$ 2,052\n\nOperating cash flows from finance leases\n501\n\n429\n\n386\n\nFinancing cash flows from finance leases\n1,056\n\n896\n\n648\n\nRight-of-use assets obtained in exchange for lease obligations:\n\nOperating leases\n3,514\n\n5,268\n\n4,380\n\nFinance leases\n3,128\n\n4,234\n\n3,290\n\nSupplemental balance sheet information related to leases was as follows:\n\n(In millions, except lease term and discount rate)\n\nJune 30,\n2023\n\n2022\n\nOperating Leases\n\nOperating lease right-of-use assets\n$ 14,346\n\n$ 13,148\n\nOther current liabilities\n$ 2,409\n\n$ 2,228\n\nOperating lease liabilities\n12,728\n\n11,489\n\nTotal operating lease liabilities\n$ 15,137\n\n$ 13,717\n\nFinance Leases\n\nProperty and equipment, at cost\n$ 20,538\n\n$ 17,388\n\nAccumulated depreciation\n(4,647)\n\n(3,285)\n\nProperty and equipment, net\n$ 15,891\n\n$ 14,103\n\nOther current liabilities\n$ 1,197\n\n$ 1,060\n\nOther long-term liabilities\n15,870\n\n13,842\n\nTotal finance lease liabilities\n$ 17,067\n\n$ 14,902\n\nWeighted Average Remaining Lease Term\n\nOperating leases\n8 years\n\n8 years\n\nFinance leases\n11 years\n\n12 years\n\nWeighted Average Discount Rate\n\nOperating leases\n2.9%\n\n2.1%\n\nFinance leases\n3.4%\n\n3.1%\n\nThe following table outlines maturities of our lease liabilities as of June 30, 2023:\n\n(In millions)\n\nYear Ending June 30,\nOperating\n\nLeases\n\nFinance\n\nLeases\n\n2024\n$ 2,784\n\n$ 1,747\n\n2025\n2,508\n\n2,087\n\n2026\n2,142\n\n1,771\n\n2027\n1,757\n\n1,780\n\n2028\n1,582\n\n1,787\n\nThereafter\n6,327\n\n11,462\n\nTotal lease payments\n17,100\n\n20,634\n\nLess imputed interest\n(1,963)\n\n(3,567)\n\nTotal\n$ 15,137\n\n$ 17,067\n\nAs of June 30, 2023, we have additional operating and finance leases, primarily for datacenters, that have not yet commenced of $7.7 billion and $34.4 billion, respectively. These operating and finance leases will commence between fiscal year 2024 and fiscal year 2030 with lease terms of 1 year to 18 years.\n\nNOTE 15 — CONTINGENCIES\n\nU.S. Cell Phone Litigation\n\nMicrosoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a defendant in 46 lawsuits, including 45 lawsuits filed in the Superior Court for the District of Columbia by individual plaintiffs who allege that radio emissions from cellular handsets caused their brain tumors and other adverse health effects. We assumed responsibility for these claims in our agreement to acquire Nokia’s Devices and Services business and have been substituted for the Nokia defendants. Nine of these cases were filed in 2002 and are consolidated for certain pre-trial proceedings; the remaining cases are stayed. In a separate 2009 decision, the Court of Appeals for the District of Columbia held that adverse health effect claims arising from the use of cellular handsets that operate within the U.S. Federal Communications Commission radio frequency emission guidelines (“FCC Guidelines”) are pre-empted by federal law. The plaintiffs allege that their handsets either operated outside the FCC Guidelines or were manufactured before the FCC Guidelines went into effect. The lawsuits also allege an industry-wide conspiracy to manipulate the science and testing around emission guidelines.\n\nIn 2013, the defendants in the consolidated cases moved to exclude the plaintiffs’ expert evidence of general causation on the basis of flawed scientific methodologies. In 2014, the trial court granted in part and denied in part the defendants’ motion to exclude the plaintiffs’ general causation experts. The defendants filed an interlocutory appeal to the District of Columbia Court of Appeals challenging the standard for evaluating expert scientific evidence. In October 2016, the Court of Appeals issued its decision adopting the standard advocated by the defendants and remanding the cases to the trial court for further proceedings under that standard. The plaintiffs have filed supplemental expert evidence, portions of which were stricken by the court. A hearing on general causation took place in September of 2022. In April of 2023, the court granted defendants’ motion to strike the testimony of plaintiffs’ experts that cell phones cause brain cancer and entered an order excluding all of plaintiffs’ experts from testifying.\n\nIrish Data Protection Commission Matter\n\nIn 2018, the Irish Data Protection Commission (“IDPC”) began investigating a complaint against LinkedIn as to whether LinkedIn’s targeted advertising practices violated the recently implemented European Union General Data Protection Regulation (“GDPR”). Microsoft cooperated throughout the period of inquiry. In April 2023, the IDPC provided LinkedIn with a non-public preliminary draft decision alleging GDPR violations and proposing a fine. Microsoft intends to challenge the preliminary draft decision. There is no set timeline for the IDPC to issue a final decision.\n\nOther Contingencies\n\nWe also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact in our consolidated financial statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.\n\nAs of June 30, 2023, we accrued aggregate legal liabilities of $617 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $600 million in aggregate beyond recorded amounts are reasonably possible. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact in our consolidated financial statements for the period in which the effects become reasonably estimable.\n\nNOTE 16 — STOCKHOLDERS’ EQUITY\n\nShares Outstanding\n\nShares of common stock outstanding were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nBalance, beginning of year\n7,464\n\n7,519\n\n7,571\n\nIssued\n37\n\n40\n\n49\n\nRepurchased\n(69)\n\n(95)\n\n(101)\n\nBalance, end of year\n7,432\n\n7,464\n\n7,519\n\nShare Repurchases\n\nOn September 18, 2019, our Board of Directors approved a share repurchase program authorizing up to $40.0 billion in share repurchases. This share repurchase program commenced in February 2020 and was completed in November 2021.\n\nOn September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $60.0 billion in share repurchases. This share repurchase program commenced in November 2021, following completion of the program approved on September 18, 2019, has no expiration date, and may be terminated at any time. As of June 30, 2023, $22.3 billion remained of this $60.0 billion share repurchase program.\n\nWe repurchased the following shares of common stock under the share repurchase programs:\n\n(In millions)\nShares\n\nAmount\n\nShares\n\nAmount\n\nShares\n\nAmount\n\nYear Ended June 30,\n2023\n2022\n2021\n\nFirst Quarter\n17\n\n$ 4,600\n\n21\n\n$ 6,200\n\n25\n\n$ 5,270\n\nSecond Quarter\n20\n\n4,600\n\n20\n\n6,233\n\n27\n\n5,750\n\nThird Quarter\n18\n\n4,600\n\n26\n\n7,800\n\n25\n\n5,750\n\nFourth Quarter\n14\n\n4,600\n\n28\n\n7,800\n\n24\n\n6,200\n\nTotal\n69\n\n$ 18,400\n\n95\n\n$ 28,033\n\n101\n\n$ 22,970\n\nAll repurchases were made using cash resources. Shares repurchased during fiscal year 2023 and the fourth and third quarters of fiscal year 2022 were under the share repurchase program approved on September 14, 2021. Shares repurchased during the second quarter of fiscal year 2022 were under the share repurchase programs approved on both September 14, 2021 and September 18, 2019. All other shares repurchased were under the share repurchase program approved on September 18, 2019. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $3.8 billion, $4.7 billion, and $4.4 billion for fiscal years 2023, 2022, and 2021, respectively.\n\nDividends\n\nOur Board of Directors declared the following dividends:\n\nDeclaration Date\nRecord Date\nPayment Date\n\nDividend\n\nPer Share\n\nAmount\n\nFiscal Year 2023\n\n(In millions)\n\nSeptember 20, 2022\nNovember 17, 2022\nDecember 8, 2022\n\n$ 0.68\n\n$ 5,066\n\nNovember 29, 2022\nFebruary 16, 2023\nMarch 9, 2023\n\n0.68\n\n5,059\n\nMarch 14, 2023\nMay 18, 2023\nJune 8, 2023\n\n0.68\n\n5,054\n\nJune 13, 2023\nAugust 17, 2023\nSeptember 14, 2023\n\n0.68\n\n5,054\n\nTotal\n\n$ 2.72\n\n$ 20,233\n\nFiscal Year 2022\n\nSeptember 14, 2021\nNovember 18, 2021\nDecember 9, 2021\n\n$ 0.62\n\n$ 4,652\n\nDecember 7, 2021\nFebruary 17, 2022\nMarch 10, 2022\n\n0.62\n\n4,645\n\nMarch 14, 2022\nMay 19, 2022\nJune 9, 2022\n\n0.62\n\n4,632\n\nJune 14, 2022\nAugust 18, 2022\nSeptember 8, 2022\n\n0.62\n\n4,621\n\nTotal\n\n$ 2.48\n\n$ 18,550\n\nThe dividend declared on June 13, 2023 was included in other current liabilities as of June 30, 2023.\n\nNOTE 17 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)\n\nThe following table summarizes the changes in accumulated other comprehensive income (loss) by component:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nDerivatives\n\nBalance, beginning of period\n$ (13)\n\n$ (19)\n\n$ (38)\n\nUnrealized gains (losses), net of tax of $9, $(15), and $9\n34\n\n(57)\n\n34\n\nReclassification adjustments for (gains) losses included in other income (expense), net\n(61)\n\n79\n\n(17)\n\nTax expense (benefit) included in provision for income taxes\n13\n\n(16)\n\n2\n\nAmounts reclassified from accumulated other comprehensive income (loss)\n(48)\n\n63\n\n(15)\n\nNet change related to derivatives, net of tax of $(4), $1, and $7\n(14)\n\n6\n\n19\n\nBalance, end of period\n$ (27)\n\n$ (13)\n\n$ (19)\n\nInvestments\n\nBalance, beginning of period\n$ (2,138)\n\n$ 3,222\n\n$ 5,478\n\nUnrealized losses, net of tax of $(393), $(1,440), and $(589)\n(1,523)\n\n(5,405)\n\n(2,216)\n\nReclassification adjustments for (gains) losses included in other income (expense), net\n99\n\n57\n\n(63)\n\nTax expense (benefit) included in provision for income taxes\n(20)\n\n(12)\n\n13\n\nAmounts reclassified from accumulated other comprehensive income (loss)\n79\n\n45\n\n(50)\n\nNet change related to investments, net of tax of $(373), $(1,428), and $(602)\n(1,444)\n\n(5,360)\n\n(2,266)\n\nCumulative effect of accounting changes\n0\n\n0\n\n10\n\nBalance, end of period\n$ (3,582)\n\n$ (2,138)\n\n$ 3,222\n\nTranslation Adjustments and Other\n\nBalance, beginning of period\n$ (2,527)\n\n$ (1,381)\n\n$ (2,254)\n\nTranslation adjustments and other, net of tax of $0, $0, and $(9)\n(207)\n\n(1,146)\n\n873\n\nBalance, end of period\n$ (2,734)\n\n$ (2,527)\n\n$ (1,381)\n\nAccumulated other comprehensive income (loss), end of period\n$ (6,343)\n\n$ (4,678)\n\n$ 1,822\n\nNOTE 18 — EMPLOYEE STOCK AND SAVINGS PLANS\n\nWe grant stock-based compensation to employees and directors. Awards that expire or are canceled without delivery of shares generally become available for issuance under the plans. We issue new shares of Microsoft common stock to satisfy vesting of awards granted under our stock plans. We also have an ESPP for all eligible employees.\n\nStock-based compensation expense and related income tax benefits were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nStock-based compensation expense\n$ 9,611\n\n$ 7,502\n\n$ 6,118\n\nIncome tax benefits related to stock-based compensation\n1,651\n\n1,293\n\n1,065\n\nStock Plans\n\nStock awards entitle the holder to receive shares of Microsoft common stock as the award vests. Stock awards generally vest over a service period of four years or five years.\n\nExecutive Incentive Plan\n\nUnder the Executive Incentive Plan, the Compensation Committee approves stock awards to executive officers and certain senior executives. RSUs generally vest ratably over a service period of four years. PSUs generally vest over a performance period of three years. The number of shares the PSU holder receives is based on the extent to which the corresponding performance goals have been achieved.\n\nActivity for All Stock Plans\n\nThe fair value of stock awards was estimated on the date of grant using the following assumptions:\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nDividends per share (quarterly amounts)\n$ 0.62 – 0.68\n\n$ 0.56 – 0.62\n\n$ 0.51 – 0.56\n\nInterest rates\n2.0% – 5.4%\n\n0.03% – 3.6%\n\n0.01% – 1.5%\n\nDuring fiscal year 2023, the following activity occurred under our stock plans:\n\nShares\n\nWeighted\n\nAverage\n\nGrant-Date\n\nFair Value\n\n(In millions)\n\nStock Awards\n\nNonvested balance, beginning of year\n93\n\n$ 227.59\n\nGranted (a)\n56\n\n252.59\n\nVested\n(44)\n\n206.90\n\nForfeited\n(9)\n\n239.93\n\nNonvested balance, end of year\n96\n\n$ 250.37\n\nIncludes 1 million, 1 million, and 2 million of PSUs granted at target and performance adjustments above target levels for fiscal years 2023, 2022, and 2021, respectively.\n\nAs of June 30, 2023, total unrecognized compensation costs related to stock awards were $18.6 billion. These costs are expected to be recognized over a weighted average period of three years. The weighted average grant-date fair value of stock awards granted was $252.59, $291.22, and $221.13 for fiscal years 2023, 2022, and 2021, respectively. The fair value of stock awards vested was $11.9 billion, $14.1 billion, and $13.4 billion, for fiscal years 2023, 2022, and 2021, respectively. As of June 30, 2023, an aggregate of 164 million shares were authorized for future grant under our stock plans.\n\nEmployee Stock Purchase Plan\n\nWe have an ESPP for all eligible employees. Shares of our common stock may be purchased by employees at three-month intervals at 90% of the fair market value on the last trading day of each three-month period. Employees may purchase shares having a value not exceeding 15% of their gross compensation during an offering period.\n\nEmployees purchased the following shares during the periods presented:\n\n(Shares in millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nShares purchased\n7\n\n7\n\n8\n\nAverage price per share\n$ 245.59\n\n$ 259.55\n\n$ 207.88\n\nAs of June 30, 2023, 74 million shares of our common stock were reserved for future issuance through the ESPP.\n\nSavings Plans\n\nWe have savings plans in the U.S. that qualify under Section 401(k) of the Internal Revenue Code, and a number of savings plans in international locations. Eligible U.S. employees may contribute a portion of their salary into the savings plans, subject to certain limitations. We match a portion of each dollar a participant contributes into the plans. Employer-funded retirement benefits for all plans were $1.6 billion, $1.4 billion, and $1.2 billion in fiscal years 2023, 2022, and 2021, respectively, and were expensed as contributed.\n\nNOTE 19 — SEGMENT INFORMATION AND GEOGRAPHIC DATA\n\nIn its operation of the business, management, including our chief operating decision maker, who is also our Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with GAAP. During the periods presented, we reported our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.\n\nWe have recast certain prior period amounts to conform to the way we internally manage and monitor our business.\n\nOur reportable segments are described below.\n\nProductivity and Business Processes\n\nOur 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:\n\nOffice Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Microsoft 365 Copilot.\n\nOffice Consumer, including Microsoft 365 Consumer subscriptions, Office licensed on-premises, and other Office services.\n\nLinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.\n\nDynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, CRM (including Customer Insights), Power Apps, and Power Automate; and on-premises ERP and CRM applications.\n\nIntelligent Cloud\n\nOur Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business and developers. This segment primarily comprises:\n\nServer 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.\n\nEnterprise Services, including Enterprise Support Services, Industry Solutions (formerly Microsoft Consulting Services), and Nuance professional services.\n\nMore Personal Computing\n\nOur More Personal Computing segment consists of products and services that put customers at the center of the experience with our technology. This segment primarily comprises:\n\nWindows, including Windows OEM licensing and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows Internet of Things.\n\nDevices, including Surface, HoloLens, and PC accessories.\n\nGaming, including Xbox hardware and Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, third-party disc royalties, and other cloud services.\n\nSearch and news advertising, comprising Bing (including Bing Chat), Microsoft News, Microsoft Edge, and third-party affiliates.\n\nRevenue and costs are generally directly attributed to our segments. However, due to the integrated structure of our business, certain revenue recognized and costs incurred by one segment may benefit other segments. Revenue from certain contracts is allocated among the segments based on the relative value of the underlying products and services, which can include allocation based on actual prices charged, prices when sold separately, or estimated costs plus a profit margin. Cost of revenue is allocated in certain cases based on a relative revenue methodology. Operating expenses that are allocated primarily include those relating to marketing of products and services from which multiple segments benefit and are generally allocated based on relative gross margin.\n\nIn addition, certain costs are incurred at a corporate level and allocated to our segments. These allocated costs generally include legal, including settlements and fines, information technology, human resources, finance, excise taxes, field selling, shared facilities services, customer service and support, and severance incurred as part of a corporate program. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated and is generally based on relative gross margin or relative headcount.\n\nSegment revenue and operating income were as follows during the periods presented:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nRevenue\n\nProductivity and Business Processes\n$ 69,274\n\n$ 63,364\n\n$ 53,915\n\nIntelligent Cloud\n87,907\n\n74,965\n\n59,728\n\nMore Personal Computing\n54,734\n\n59,941\n\n54,445\n\nTotal\n$ 211,915\n\n$ 198,270\n\n$ 168,088\n\nOperating Income\n\nProductivity and Business Processes\n$ 34,189\n\n$ 29,690\n\n$ 24,351\n\nIntelligent Cloud\n37,884\n\n33,203\n\n26,471\n\nMore Personal Computing\n16,450\n\n20,490\n\n19,094\n\nTotal\n$ 88,523\n\n$ 83,383\n\n$ 69,916\n\nNo sales to an individual customer or country other than the United States accounted for more than 10% of revenue for fiscal years 2023, 2022, or 2021. Revenue, classified by the major geographic areas in which our customers were located, was as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nUnited States (a)\n$ 106,744\n\n$ 100,218\n\n$ 83,953\n\nOther countries\n105,171\n\n98,052\n\n84,135\n\nTotal\n$ 211,915\n\n$ 198,270\n\n$ 168,088\n\nIncludes billings to OEMs and certain multinational organizations because of the nature of these businesses and the impracticability of determining the geographic source of the revenue.\n\nRevenue, classified by significant product and service offerings, was as follows:\n\n(In millions)\n\nYear Ended June 30,\n2023\n\n2022\n\n2021\n\nServer products and cloud services\n$ 79,970\n\n$ 67,350\n\n$ 52,589\n\nOffice products and cloud services\n48,728\n\n44,862\n\n39,872\n\nWindows\n21,507\n\n24,732\n\n22,488\n\nGaming\n15,466\n\n16,230\n\n15,370\n\nLinkedIn\n15,145\n\n13,816\n\n10,289\n\nSearch and news advertising\n12,208\n\n11,591\n\n9,267\n\nEnterprise Services\n7,722\n\n7,407\n\n6,943\n\nDevices\n5,521\n\n7,306\n\n7,143\n\nDynamics\n5,437\n\n4,687\n\n3,754\n\nOther\n211\n\n289\n\n373\n\nTotal\n$ 211,915\n\n$ 198,270\n\n$ 168,088\n\nOur Microsoft Cloud revenue, which includes Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties, was $111.6 billion, $91.4 billion, and $69.1 billion in fiscal years 2023, 2022, and 2021, respectively. These amounts are primarily included in Server products and cloud services, Office products and cloud services, LinkedIn, and Dynamics in the table above.\n\nAssets are not allocated to segments for internal reporting presentations. A portion of amortization and depreciation is included with various other costs in an overhead allocation to each segment. It is impracticable for us to separately identify the amount of amortization and depreciation by segment that is included in the measure of segment profit or loss.\n\nLong-lived assets, excluding financial instruments and tax assets, classified by the location of the controlling statutory company and with countries over 10% of the total shown separately, were as follows:\n\n(In millions)\n\nJune 30,\n2023\n\n2022\n\n2021\n\nUnited States\n$ 114,380\n\n$ 106,430\n\n$ 76,153\n\nIreland\n16,359\n\n15,505\n\n13,303\n\nOther countries\n56,500\n\n44,433\n\n38,858\n\nTotal\n$ 187,239\n\n$ 166,368\n\n$ 128,314\n\nAuditor's Report\n\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\n\nTo the Stockholders and the Board of Directors of Microsoft Corporation\n\nOpinion on the Financial Statements\n\nWe have audited the accompanying consolidated balance sheets of Microsoft Corporation and subsidiaries (the “Company”) as of June 30, 2023 and 2022, the related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity, for each of the three years in the period ended June 30, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.\n\nWe have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 27, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting.\n\nBasis for Opinion\n\nThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.\n\nCritical Audit Matters\n\nThe critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.\n\nRevenue Recognition – Refer to Note 1 to the financial statements\n\nCritical Audit Matter Description\n\nThe Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company offers customers the ability to acquire multiple licenses of software products and services, including cloud-based services, in its customer agreements through its volume licensing programs.\n\nSignificant judgment is exercised by the Company in determining revenue recognition for these customer agreements, and includes the following:\n\nDetermination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together, such as software licenses and related services that are sold with cloud-based services.\n\nThe pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.\n\nIdentification and treatment of contract terms that may impact the timing and amount of revenue recognized (e.g., variable consideration, optional purchases, and free services).\n\nDetermination of stand-alone selling prices for each distinct performance obligation and for products and services that are not sold separately.\n\nGiven these factors and due to the volume of transactions, the related audit effort in evaluating management’s judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.\n\nHow the Critical Audit Matter Was Addressed in the Audit\n\nOur principal audit procedures related to the Company’s revenue recognition for these customer agreements included the following:\n\nWe tested the effectiveness of controls related to the identification of distinct performance obligations, the determination of the timing of revenue recognition, and the estimation of variable consideration.\n\nWe evaluated management’s significant accounting policies related to these customer agreements for reasonableness.\n\nWe selected a sample of customer agreements and performed the following procedures:\n\nObtained and read contract source documents for each selection, including master agreements, and other documents that were part of the agreement.\n\nTested management’s identification and treatment of contract terms.\n\nAssessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.\n\nWe evaluated the reasonableness of management’s estimate of stand-alone selling prices for products and services that are not sold separately.\n\nWe tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements.\n\nIncome Taxes – Uncertain Tax Positions – Refer to Note 12 to the financial statements\n\nCritical Audit Matter Description\n\nThe Company’s long-term income taxes liability includes uncertain tax positions related to transfer pricing issues that remain unresolved with the Internal Revenue Service (“IRS”). The Company remains under IRS audit, or subject to IRS audit, for tax years subsequent to 2003. While the Company has settled a portion of the IRS audits, resolution of the remaining matters could have a material impact on the Company’s financial statements.\n\nConclusions on recognizing and measuring uncertain tax positions involve significant estimates and management judgment and include complex considerations of the Internal Revenue Code, related regulations, tax case laws, and prior-year audit settlements. Given the complexity and the subjective nature of the transfer pricing issues that remain unresolved with the IRS, evaluating management’s estimates relating to their determination of uncertain tax positions required extensive audit effort and a high degree of auditor judgment, including involvement of our tax specialists.\n\nHow the Critical Audit Matter Was Addressed in the Audit\n\nOur principal audit procedures to evaluate management’s estimates of uncertain tax positions related to unresolved transfer pricing issues included the following:\n\nWe evaluated the appropriateness and consistency of management’s methods and assumptions used in the identification, recognition, measurement, and disclosure of uncertain tax positions, which included testing the effectiveness of the related internal controls.\n\nWe read and evaluated management’s documentation, including relevant accounting policies and information obtained by management from outside tax specialists, that detailed the basis of the uncertain tax positions.\n\nWe tested the reasonableness of management’s judgments regarding the future resolution of the uncertain tax positions, including an evaluation of the technical merits of the uncertain tax positions.\n\nFor those uncertain tax positions that had not been effectively settled, we evaluated whether management had appropriately considered new information that could significantly change the recognition, measurement or disclosure of the uncertain tax positions.\n\nWe evaluated the reasonableness of management’s estimates by considering how tax law, including statutes, regulations and case law, impacted management’s judgments.\n\n/s/    DELOITTE & TOUCHE LLP\n\nSeattle, Washington\n\nJuly 27, 2023\n\nWe have served as the Company’s auditor since 1983.\n\nControls & Procedures\n\nCHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE\n\nNot applicable.\n\nCONTROLS AND PROCEDURES\n\nUnder the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.\n\nREPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING\n\nOur management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our consolidated financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use, or disposition of company assets that could have a material effect on our consolidated financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected.\n\nManagement conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of June 30, 2023. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2023 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, 2023; their report follows.\n\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\n\nTo the Stockholders and the Board of Directors of Microsoft Corporation\n\nOpinion on Internal Control over Financial Reporting\n\nWe have audited the internal control over financial reporting of Microsoft Corporation and subsidiaries (the “Company”) as of June 30, 2023, 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, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.\n\nWe have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2023, of the Company and our report dated July 27, 2023, expressed an unqualified opinion on those financial statements.\n\nBasis for Opinion\n\nThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\nWe conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.\n\nDefinition and Limitations of Internal Control over Financial Reporting\n\nA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.\n\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\n\n/s/    DELOITTE & TOUCHE LLP\n\nSeattle, Washington\n\nJuly 27, 2023\n\nDirectors & Officers\n\nDIRECTORS AND EXECUTIVE OFFICERS OF MICROSOFT CORPORATION\n\nDirectors\n\nSatya Nadella\n\nChairman and Chief Executive Officer, \n\nMicrosoft Corporation\n\nSandra E. Peterson 2,3\n\nLead Independent Director, \n\nMicrosoft Corporation\n\nJohn W. Stanton 1,4\n\nFounder and Chairman, Trilogy \n\nPartnerships\n\nReid G. Hoffman 4\n\nPartner, Greylock Partners\n\nPenny S. Pritzker 4\n\nFounder and Chairman, \n\nPSP Partners, LLC\n\nJohn W. Thompson 3,4\n\nPartner, Lightspeed Venture \n\nPartners\n\nHugh F. Johnston 1\n\nVice Chairman and Executive Vice \n\nPresident and Chief Financial Officer, \n\nPepsiCo, Inc.\n\nCarlos A. Rodriguez 1,2\n\nExecutive Chair, ADP, Inc.\n\nEmma N. Walmsley 2,4\n\nChief Executive Officer, GSK plc\n\nTeri L. List 1,3\n\nFormer Executive Vice President and Chief Financial Officer, The Gap, Inc.\n\nCharles W. Scharf 2,3\n\nChief Executive Officer and \n\nPresident, Wells Fargo & Company\n\nPadmasree Warrior 2\n\nFounder, President and Chief Executive Officer, Fable Group, Inc.\n\nBoard Committees\n\nAudit Committee\n\nCompensation Committee\n\nGovernance and Nominating Committee\n\nEnvironmental, Social, and Public Policy Committee\n\nExecutive Officers\n\nSatya Nadella\n\nChairman and Chief Executive Officer\n\nAmy E. Hood\n\nExecutive Vice President and Chief Financial Officer\n\nJudson B. Althoff\n\nExecutive Vice President and Chief Commercial Officer\n\nBradford L. Smith\n\nVice Chair and President\n\nChristopher C. Capossela\n\nExecutive Vice President and Chief Marketing Officer\n\nChristopher D. Young\n\nExecutive Vice President, Business Development, \n\nStrategy, and Ventures\n\nKathleen T. Hogan\n\nExecutive Vice President and Chief Human Resources Officer\n\nInvestor Relations\nInvestor Relations\n\nYou can contact Microsoft Investor Relations by calling toll-free at (800) 285-7772 or outside the United States, call (425) 706-4400. We can be contacted between the hours of 9:00 a.m. to 5:00 p.m. Pacific Time to answer investment-oriented questions about Microsoft.\n\nFor access to additional financial information, visit the Investor Relations website online at: www.microsoft.com/investor\n\nOur e-mail is msft@microsoft.com\n\nOur mailing address is:\n\n Investor Relations\n\nMicrosoft Corporation\n\nOne Microsoft Way\n\nRedmond, Washington 98052-6399 \n\nAttending the Annual Meeting\n\nThe 2023 Annual Shareholders Meeting will be held as a virtual-only meeting. Any shareholder can join the Annual Meeting, while shareholders of record as of September 29 2023, will be able to vote and submit questions during the meeting.\n\nDate: Thursday, December 7, 2023\n\nTime: 8:30 a.m. Pacific Time\n\nVirtual Shareholder Meeting: www.virtualshareholdermeeting.com/MSFT23\nSubmit Your Question\n\nWe invite you to submit any questions via the proxy voting site at www.proxyvote.com. We will include as many of your questions as possible during the Q&A session of the meeting and will provide answers to questions on the Microsoft Investor Relations website under the Annual Meeting page.\nRegistered Shareholder Services\n\nComputershare, our transfer agent, can help you with a variety of shareholder related services including:\n\nChange of address\n\nLost stock certificates\n\nTransfer of stock to another person\n\nAdditional administrative services\n\nComputershare also administers a direct stock purchase plan and a dividend reinvestment program for the company.\n\nContact Computershare directly to find out more about these services and programs at 800-285-7772, option 1, or visit online at: https://www.computershare.com/Microsoft\n\nYou can e-mail the transfer agent at: web.queries@computershare.com\n\nYou can also send mail to the transfer agent at:\n\n Computershare\n\nP.O. Box 505000\n\nLouisville, KY 40233-5000\n\nShareholders can sign up for electronic alerts to access the annual report and proxy statement online. The service gets you the information you need faster and also gives you the power and convenience of online proxy voting. To sign up for this free service, visit the Annual Report site on the Investor Relations website at: http://www.microsoft.com/investor/AnnualReports/default.aspx\nEnvironmental, Social, and Governance (ESG)/Corporate Social Responsibility\n\nMany of our shareholders are focused on environmental, social, and governance topics. To meet the expectations of our stakeholders and to and maintain their trust, we are committed to conducting our business in ways that are principled, transparent, and accountable. Microsoft has made a broad range of environmental and social commitments to make a significant positive impact on important global issues. Microsoft’s Board of Directors provides insight, feedback, and oversight across a broad range of environmental and social matters. In particular, among the responsibilities of the Board’s Environmental, Social, and Public Policy Committee is to review and provide guidance to the Board and management about the Company’s policies and programs that relate to corporate social responsibility.\n\nFor more about Microsoft’s CSR commitments and performance, please visit: www.microsoft.com/transparency.\n\n"}], "method": "HTML visible text; synthetic page 1", "total_pages": 1, "truncated": false}, "fy2024/evidence": {"year": 2024, "document": {"title": "Microsoft Annual Report 2024", "url": "https://www.microsoft.com/investor/reports/ar24/index.html", "company": "Microsoft Corporation", "report_type": "annual", "period_end": "2024-06-30", "fiscal_year": 2024, "publication_date": null, "identity": "Microsoft-hosted annual report HTML"}, "snapshot": {"url": "https://www.microsoft.com/investor/reports/ar24/index.html", "sha256": "2b49e38b25f3bea8634b603ad5db64ba0803f27e27f93cc406884e6990974065", "retrieved_at": "2026-10-01T08:22:33.220Z", "pages": [], "method": "HTML visible text; synthetic page 1", "total_pages": 1, "truncated": false, "chunks": 5}, "claims": [{"category": "reported_fact", "summary": "Azure Arc customers reached 36,000, up 90% year‑over‑year.", "excerpt": "We have 36,000 Arc customers, up 90 percent year-over-year.", "page": 1, "section": "Infrastructure", "target_date": null, "numeric_target": "36000", "unit": "customers", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Azure AI customers exceeded 60,000, up nearly 60% year‑over‑year.", "excerpt": "In total, we have over 60,000 Azure AI customers, up nearly 60 percent year-over-year.", "page": 1, "section": "Data & AI", "target_date": null, "numeric_target": "60000", "unit": "customers", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "GitHub Copilot had over 1.8 million paid subscribers and over 77,000 enterprise customers, up 180% year‑over‑year.", "excerpt": "We now have more than 1.8 million paid subscribers and over 77,000 enterprise customers, up 180 percent year-over-year.", "page": 1, "section": "Digital & app innovation", "target_date": null, "numeric_target": "1.8", "unit": "million paid subscribers", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Power Platform monthly active users reached 48 million, up 40% year‑over‑year.", "excerpt": "In total, we now have 48 million monthly active users of Power Platform, up 40 percent year-over-year.", "page": 1, "section": "Digital & app innovation", "target_date": null, "numeric_target": "48", "unit": "million MAU", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Teams Premium seats surpassed 3 million, up nearly 400% year‑over‑year.", "excerpt": "And Teams Premium surpassed 3 million seats, up nearly 400 percent year-over-year", "page": 1, "section": "Modern work", "target_date": null, "numeric_target": "3", "unit": "million seats", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "LinkedIn surpassed 1 billion members for the first time.", "excerpt": "We surpassed 1 billion members for the first time this year", "page": 1, "section": "Professional social network", "target_date": null, "numeric_target": "1", "unit": "billion members", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Trained and certified 14.1 million people in digital skills as of June 2024.", "excerpt": "We have trained and certified 14.1 million people across 202 countries in digital skills as of June 2024.", "page": 1, "section": "Investing in Digital Skills", "target_date": null, "numeric_target": "14.1", "unit": "million people", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Contracted over 34 gigawatts of renewable energy across 24 countries.", "excerpt": "we have contracted over 34 gigawatts of renewable energy, including projects in 24 countries.", "page": 1, "section": "How can we advance sustainability?", "target_date": null, "numeric_target": "34", "unit": "gigawatts", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Microsoft Cloud revenue increased 23% to $137.4 billion.", "excerpt": "Microsoft Cloud revenue increased 23% to $137.4 billion.", "page": 1, "section": "Highlights", "target_date": null, "numeric_target": "$137.4 billion", "unit": "USD", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Office Commercial products and cloud services revenue increased 14% driven by Office 365 Commercial growth of 16%.", "excerpt": "Office Commercial products and cloud services revenue increased 14% driven by Office 365 Commercial growth of 16%.", "page": 1, "section": "Highlights", "target_date": null, "numeric_target": "14%", "unit": "%", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Office Consumer products and cloud services revenue increased 4% and Microsoft 365 Consumer subscribers grew to 82.5 million.", "excerpt": "Office Consumer products and cloud services revenue increased 4% and Microsoft 365 Consumer subscribers grew to 82.5 million.", "page": 1, "section": "Highlights", "target_date": null, "numeric_target": "82.5 million", "unit": "subscribers", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "LinkedIn revenue increased 9%.", "excerpt": "LinkedIn revenue increased 9%.", "page": 1, "section": "Highlights", "target_date": null, "numeric_target": "9%", "unit": "%", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Dynamics products and cloud services revenue increased 19% driven by Dynamics 365 growth of 24%.", "excerpt": "Dynamics products and cloud services revenue increased 19% driven by Dynamics 365 growth of 24%.", "page": 1, "section": "Highlights", "target_date": null, "numeric_target": "19%", "unit": "%", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Server products and cloud services revenue increased 22% driven by Azure and other cloud services growth of 30%.", "excerpt": "Server products and cloud services revenue increased 22% driven by Azure and other cloud services growth of 30%.", "page": 1, "section": "Highlights", "target_date": null, "numeric_target": "22%", "unit": "%", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "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%.", "excerpt": "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%.", "page": 1, "section": "Highlights", "target_date": null, "numeric_target": "8%", "unit": "%", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Devices revenue decreased 15%.", "excerpt": "Devices revenue decreased 15%.", "page": 1, "section": "Highlights", "target_date": null, "numeric_target": "-15%", "unit": "%", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "challenge", "summary": "The investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and may decrease our operating margins.", "excerpt": "The investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and may decrease our operating margins.", "page": 1, "section": "Economic Conditions, Challenges, and Risks", "target_date": null, "numeric_target": null, "unit": null, "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": false}, {"category": "challenge", "summary": "Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units (“GPUs”) and other components.", "excerpt": "Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units (“GPUs”) and other components.", "page": 1, "section": "Economic Conditions, Challenges, and Risks", "target_date": null, "numeric_target": null, "unit": null, "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": false}, {"category": "reported_fact", "summary": "Research and development expenses rose $2.3 billion (9%) YoY, driven by Gaming and Activision Blizzard acquisition.", "excerpt": "Research and development expenses increased $2.3 billion or 9% driven by Gaming, with 7 points of growth from the Activision Blizzard acquisition, and investments in cloud engineering.", "page": 1, "section": "Research and Development", "target_date": null, "numeric_target": "$2.3 billion", "unit": "USD", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Sales and marketing expenses increased $1.7 billion (7%) YoY, driven by Gaming and Activision Blizzard acquisition.", "excerpt": "Sales and marketing expenses increased $1.7 billion or 7% driven by Gaming, with 6 points of growth from the Activision Blizzard acquisition.", "page": 1, "section": "Sales and Marketing", "target_date": null, "numeric_target": "$1.7 billion", "unit": "USD", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "General and administrative expenses increased slightly as Activision Blizzard growth offset prior year Q2 charge.", "excerpt": "General and administrative expenses increased slightly as growth from the Activision Blizzard acquisition was offset in part by the prior year Q2 charge.", "page": 1, "section": "General and Administrative", "target_date": null, "numeric_target": null, "unit": null, "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Effective tax rate was 18% in FY2024, down from 19% in FY2023.", "excerpt": "Our effective tax rate for fiscal years 2024 and 2023 was 18% and 19%, respectively.", "page": 1, "section": "Income Taxes", "target_date": null, "numeric_target": "18%", "unit": "percent", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "challenge", "summary": "IRS proposes additional tax payment of $28.9 billion plus penalties and interest for tax years 2004‑2013.", "excerpt": "In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest.", "page": 1, "section": "Income Taxes", "target_date": null, "numeric_target": "$28.9 billion", "unit": "USD", "attribution": "Microsoft Annual Report 2024", "uncertainties": ["subject to administrative appeals and possible judicial proceedings", "resolution not expected within next 12 months"], "is_highlight": true}, {"category": "reported_fact", "summary": "Remaining transition tax liability of $7.6 billion, with $3.8 billion short‑term payable Q1 FY2025.", "excerpt": "As of June 30, 2024, we had a remaining transition tax liability of $7.6 billion, of which $3.8 billion is short-term and payable in the first quarter of fiscal year 2025.", "page": 1, "section": "Income Taxes", "target_date": "first quarter of fiscal year 2025", "numeric_target": "$3.8 billion", "unit": "USD", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "As of June 30 2024, $10.3 billion remained of the $60 billion share repurchase program.", "excerpt": "As of June 30, 2024, $10.3 billion remained of our $60 billion share repurchase program.", "page": 1, "section": "Share Repurchases", "target_date": null, "numeric_target": "$10.3 billion", "unit": "USD", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Cash from operations increased $31.0 billion to $118.5 billion in FY2024.", "excerpt": "Cash from operations increased $31.0 billion to $118.5 billion for fiscal year 2024, primarily due to an increase in cash received from customers.", "page": 1, "section": "Cash Flows", "target_date": null, "numeric_target": "$31.0 billion", "unit": "USD", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Cash used in investing increased $74.3 billion to $97.0 billion in FY2024.", "excerpt": "Cash used in investing increased $74.3 billion to $97.0 billion for fiscal year 2024, primarily due to a $67.5 billion increase in cash used for acquisitions of companies, net of cash acquired, and purchases of intangible and other assets and a $16.4 billion increase in additions to property and equipment.", "page": 1, "section": "Cash Flows", "target_date": null, "numeric_target": "$74.3 billion", "unit": "USD", "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "forecast", "summary": "Existing cash, cash equivalents, short‑term investments, operating cash flows and capital market access are expected to be sufficient to fund activities for at least the next 12 months and the foreseeable future.", "excerpt": "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.", "page": 1, "section": "Liquidity and Capital Resources", "target_date": "next 12 months", "numeric_target": null, "unit": null, "attribution": "Microsoft Annual Report 2024", "uncertainties": [], "is_highlight": true}, {"category": "measurable_promise", "summary": "Commitment to spend $35.4 billion on construction of new buildings and improvements primarily for datacenters.", "excerpt": "As of June 30, 2024, we have committed $35.4 billion for the construction of new buildings, building improvements, and leasehold improvements, primarily related to datacenters.", "page": 1, "section": "Property and Equipment", "target_date": null, "numeric_target": "35.4", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "forecast", "summary": "Expect to recognize approximately 45% of total company remaining performance obligation revenue over the next 12 months.", "excerpt": "We expect to recognize approximately 45% of our total company remaining performance obligation revenue over the next 12 months and the remainder thereafter.", "page": 1, "section": "Unearned Revenue", "target_date": null, "numeric_target": "45", "unit": "%", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Accumulated goodwill impairment was $11.3 billion as of June 30, 2024 and 2023.", "excerpt": "As of June 30, 2024 and 2023, accumulated goodwill impairment was $11.3 billion.", "page": 1, "section": "Goodwill", "target_date": null, "numeric_target": "11.3", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "challenge", "summary": "If inventory utility falls below carrying value, inventory is reduced via a charge to cost of revenue.", "excerpt": "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.", "page": 1, "section": "Inventories", "target_date": null, "numeric_target": null, "unit": null, "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "As of June 30, 2024, $6.7 billion of commercial paper issued and outstanding with weighted average interest rate of 5.4% and maturities 28-152 days.", "excerpt": "As of June 30, 2024, we had $6.7 billion of commercial paper issued and outstanding, with a weighted average interest rate of 5.4% and maturities ranging from 28 days to 152 days.", "page": 1, "section": "Debt", "target_date": null, "numeric_target": "6.7", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Income taxes paid, net of refunds, were $23.4 billion in fiscal year 2024.", "excerpt": "Income taxes paid, net of refunds, were $23.4 billion, $23.1 billion, and $16.0 billion in fiscal years 2024, 2023, and 2022, respectively.", "page": 1, "section": "Income Taxes", "target_date": null, "numeric_target": "23.4", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "As of June 30, 2024, additional operating leases not yet commenced total $8.6 billion and finance leases not yet commenced total $108.4 billion.", "excerpt": "As of June 30, 2024, we had additional operating and finance leases, primarily for datacenters, that had not yet commenced of $8.6 billion and $108.4 billion, respectively.", "page": 1, "section": "Leases", "target_date": null, "numeric_target": "8.6", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Goodwill assigned to More Personal Computing segment from Activision Blizzard acquisition was $51.0 billion.", "excerpt": "Includes goodwill of $51.0 billion related to Activision Blizzard.", "page": 1, "section": "Goodwill", "target_date": null, "numeric_target": "51.0", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "forecast", "summary": "Total unrecognized compensation costs of $20.3 billion are expected to be recognized over a weighted average period of three years.", "excerpt": "As of June 30, 2024, total unrecognized compensation costs related to stock awards were $20.3 billion. These costs are expected to be recognized over a weighted average period of three years.", "page": 1, "section": "Note 18 – Employee Stock and Savings Plans", "target_date": null, "numeric_target": "20.3", "unit": "billions USD", "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Employer-funded retirement benefits were $1.7 billion in fiscal year 2024.", "excerpt": "Employer-funded retirement benefits for all plans were $1.7 billion, $1.6 billion, and $1.4 billion in fiscal years 2024, 2023, and 2022, respectively, and were expensed as contributed.", "page": 1, "section": "Note 18 – Employee Stock and Savings Plans", "target_date": null, "numeric_target": "1.7", "unit": "billions USD", "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "As of June 30, 2024, 129 million shares were authorized for future grant under stock plans.", "excerpt": "As of June 30, 2024, an aggregate of 129 million shares were authorized for future grant under our stock plans.", "page": 1, "section": "Note 18 – Employee Stock and Savings Plans", "target_date": null, "numeric_target": "129", "unit": "million shares", "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "As of June 30, 2024, 68 million shares were reserved for future issuance through the ESPP.", "excerpt": "As of June 30, 2024, 68 million shares of our common stock were reserved for future issuance through the ESPP.", "page": 1, "section": "Note 18 – Employee Stock and Savings Plans", "target_date": null, "numeric_target": "68", "unit": "million shares", "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Microsoft Cloud revenue was $137.4 billion in fiscal year 2024.", "excerpt": "Our Microsoft Cloud revenue, which includes Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties, was $137.4 billion, $111.6 billion, and $91.4 billion in fiscal years 2024, 2023, and 2022, respectively.", "page": 1, "section": "Note 19 – Segment Information and Geographic Data", "target_date": null, "numeric_target": "137.4", "unit": "billions USD", "attribution": null, "uncertainties": [], "is_highlight": true}], "gaps": ["Publication date for Microsoft 2024 Annual Report not explicitly stated in source.", "Publication date (filing date) for SEC Form 10-K not explicitly stated in source.", "2 claims had unsupported quotations or page numbers and were rejected.", "No explicit Management’s Discussion and Analysis (MD&A) section was identified in the provided chunk.", "2 claims had unsupported quotations or page numbers and were rejected.", "3 claims had unsupported quotations or page numbers and were rejected."], "extractedChunks": 5, "totalChunks": 5}, "fy2024/source": {"url": "https://www.microsoft.com/investor/reports/ar24/index.html", "sha256": "2b49e38b25f3bea8634b603ad5db64ba0803f27e27f93cc406884e6990974065", "retrieved_at": "2026-10-01T08:22:33.220Z", "pages": [{"page": 1, "text": "\n\nMicrosoft 2024 Annual Report\n\nMicrosoft\n\nAnnual Report 2024\n\nAnnual Report 2024\nContinue to Shareholder Letter\n\nSatya Nadella\n\nChairman and Chief Executive Officer\n\nDear shareholders, colleagues, customers, and partners:\n\nFiscal year 2024 was a pivotal year for Microsoft. We entered our 50th year as a company and the second year of the AI platform shift. With these milestones, I’ve found myself reflecting on how Microsoft has remained a consequential company decade after decade in an industry with no franchise value. And I realize that it’s because—time and time again, when tech paradigms have shifted—we have seized the opportunity to reinvent ourselves to stay relevant to our customers, our partners, and our employees. And that’s what we are doing again today.\n\nMicrosoft has been a platform and tools company from the start. We were founded in 1975 with a belief in creating technology that would enable others to create their own. And, nearly 50 years later, this belief remains at the heart of our mission to empower every person and every organization on the planet to achieve more.\n\nThis year, we moved from talking about AI to helping our customers translate it into real outcomes—one person, one organization, one institution, and one country at a time. We have made remarkable progress on this front across every industry. For example:\n\nColes is generating 1.6 billion daily AI predictions across 850 Australian stores, ensuring every shopper finds what they need.\n\nUnilever is performing thousands of simulations with AI in the time it would take to run tens of laboratory experiments, as it accelerates its product development.\n\nDevelopers at Itaú, Brazil’s largest private bank, are coding more efficiently using our AI pair programmer, GitHub Copilot.\n\nKhan Academy is making tutoring more accessible for students and helping teachers plan more creative lessons, using our small language model Phi.\n\nAquafarmers in Indonesia are improving their yields, thanks to an app built with the Azure OpenAI Service, as well as Azure IoT.\n\nIn Kenya, street vendors now have access to credit for the first time, thanks to M-Kopa, a social enterprise using Azure ML to do its forecasting.\n\nAnd enterprise customers and their employees around the world, from Amgen and Disney, to Finastra and Vodafone, are using Microsoft 365 Copilot to become more creative and productive.\n\nFinancially, the year was also marked by record performance. We delivered over $245 billion in annual revenue, up 16 percent year-over-year, and over $109 billion in operating income, up 24 percent.\n\nGoing forward, we are focused on three priorities: First, prioritizing fundamentals, with security above all else. We launched the Secure Future Initiative (SFI) this year, bringing together every part of our organization to advance cybersecurity protection. Second, driving trustworthy AI innovation across our entire portfolio while continuing to scale our cloud business. And, finally, managing our cost structure dynamically to generate durable, long-term operating leverage. All three priorities are critical to our ability to continue thriving as a company as we raise the bar on our operational excellence, with a focus on continuous improvement across everything we do.\n\nAGE OF AI\n\nIf we go back 70 years to the beginning of modern computing, our industry has had two dreams: First, can computers understand us instead of us having to understand computers? And second, as we digitize more of the world—including people, places, and things—can computers help us reason, plan, and act more effectively using all that information? Over the past year, we have had breakthroughs on both fronts.\n\nThe core underlying force behind these breakthroughs is scaling laws. Just like Moore’s Law drove the information revolution, the scaling laws of deep neural networks (DNN) and transformers are driving today’s AI revolution. Up until the DNN inflection point, progress in compute was keeping up with Moore’s Law—doubling every two years. But we have now started to see progress in AI performance double roughly every six months.\n\nThere are three capabilities coming together because of these scaling laws. First, we have a new natural user interface that is multimodal. It supports speech, images, and videos—both as input and output. We have memory that retains important context, recalling both our personal knowledge and data across devices, apps, and the web. And, finally, we have new reasoning and planning capabilities that help us understand complex context, complete end-to-end tasks on our behalf, and reduce our cognitive load.\n\nThis new world is being defined by a rich tapestry of AI agents, which can take action on our behalf, including personal agents across work and life, business process agents, and cross-organizational ones. These agents will be able to work in concert as a new input to help make small businesses more productive, make multinationals more competitive, make the public sector more efficient, and improve health and education outcomes broadly.\n\nMicrosoft has built three leading platforms to help our customers maximize their opportunity in this emerging agentic era: Copilot, which you can think of as the new UI for AI—the human interface for this agentic world; the Copilot stack, which brings together infrastructure, data, and app services to help customers build their own copilots and agents for their own business processes; and a new category of Copilot devices that are purpose-built for this new era, including the Copilot+ PCs we introduced this year.\n\nOUR OPPORTUNITY\n\nThe innovation we have driven over the past year matters only if we translate it into enduring value for our customers. That’s why, across our tech stack, we are focused on helping people and organizations realize the benefits of AI. \n\nInfrastructure\n\nThis year, we expanded our cloud and AI capacity, announcing new investments across five continents. These are long-term assets to drive new growth for the next decade and beyond, and ensure communities around the world have access to the compute they need to drive economic growth in this new era.\n\nOur cloud now also offers top performance for AI training and inference and the most diverse selection of AI accelerators, including the latest from AMD and NVIDIA, as well as our own first-party silicon, Azure Maia, which we introduced last November.\n\nMore broadly, we continued to see sustained revenue growth from migrations as customers turn to Azure. Azure Arc is helping customers streamline their transition, as they secure, develop, and operate workloads with Azure services anywhere. We have 36,000 Arc customers, up 90 percent year-over-year. And we remain the hyperscale cloud of choice for SAP and Oracle workloads.\n\nData & AI\n\nAI models are now key building blocks for every application. And with Azure AI, we are building out the app server for the AI age, providing access to the most diverse selection of models to meet customers’ unique cost, latency, and design considerations. We offer leading frontier models, thanks to our strategic partnership with OpenAI. With Phi-3, which we announced in April, we offer a family of powerful, small language models. And, with Models as a service, we provide API access to third-party models, including the latest from Cohere, Meta, and Mistral. In total, we have over 60,000 Azure AI customers, up nearly 60 percent year-over-year. This year, we also announced a partnership with G42, which will run its AI applications and services on our cloud, as we collaborate to bring our latest AI technologies to the United Arab Emirates and other countries.\n\nAI does not get created without data. At the data layer, we are fundamentally rethinking what it means to be an analytics database or an operational data store in the world of AI. Our Microsoft Intelligent Data Platform provides customers with the broadest capabilities spanning databases, analytics, business intelligence, and governance—along with seamless integration with all our AI services. And Microsoft Fabric, our AI-powered, next-generation data platform we made generally available this year, now has over 14,000 paid customers who can go from data, to insights, to action—all within the same unified SaaS solution.\n\nDigital & app innovation  \n\nFrom GitHub to Visual Studio, we have the most comprehensive developer tools. GitHub Copilot had a breakout year, as it became standard issue for developers in every industry. We now have more than 1.8 million paid subscribers and over 77,000 enterprise customers, up 180 percent year-over-year. They are realizing productivity gains of up to 55 percent while staying in their flow and bringing the joy back to coding. This year, we also introduced Copilot Workspace, a Copilot-native developer environment, which helps any developer go from idea, to code, to software—all in natural language.\n\nWe are also integrating generative AI across Power Platform, enabling anyone to use natural language to create apps, automate workflows, or build a website. In total, we now have 48 million monthly active users of Power Platform, up 40 percent year-over-year.\n\nModern work\n\nMicrosoft 365 Copilot is becoming a daily habit for knowledge workers, transforming their work, workflow, and work artifacts. Adoption has been faster than any other new Microsoft 365 suite. And employees at nearly 60 percent of the Fortune 500 now use Copilot to complete tasks faster, hold more effective meetings, and automate business workflows and processes. In fact, internal and external studies show as much as a 70 percent improvement in productivity using generative AI for specific work tasks. And early Microsoft 365 Copilot users were 29 percent faster in a series of general tasks like searching, writing, and summarizing.\n\nAnd we’re going further, bringing the Web plus Work plus Pages together as the new AI design system for knowledge work. With Pages, which we just announced last month, you can take any information from the web or your work and turn it into a multiplayer, AI-powered canvas. You can ideate with AI and then easily share what you create for collaboration with other people.\n\nAnd with Copilot Studio, customers can extend Copilot with agents and build their own agents that proactively respond to data and events from their own first- and third-party business data. To date, 50,000 organizations have used it. And, just this week, we announced new capabilities that will make it possible for customers to build autonomous agents using Copilot Studio.\n\nMicrosoft Teams remains essential to how hundreds of millions of people meet, call, chat, collaborate, and do business. This year, we rolled out to all customers a new version that is up to two times faster while using 50 percent less memory. And Teams Premium surpassed 3 million seats, up nearly 400 percent year-over-year, as organizations chose it for advanced features like end-to-end encryption and real-time translation.\n\nBusiness applications \n\nWe’re using this AI moment to redefine our role in business applications, too. Dynamics 365 once again took share, as organizations use our AI-powered apps to transform their marketing, sales, service, finance, and supply chain functions.\n\nAnd we are expanding our total addressable market by integrating Copilot into third-party systems as well. Our new Dynamics 365 Contact Center infuses generative AI throughout the contact center workflow in a customer’s existing CRM.\n\nWe are also extending Copilot to specific industries, including healthcare. With DAX Copilot, more than 400 healthcare organizations are increasing physician productivity and reducing burnout. On average, clinicians save more than five minutes per patient encounter. And 77 percent say it also improves documentation quality.\n\nSecurity\n\nAs I mentioned earlier, security underpins every layer of our tech stack. We are doubling down on our Secure Future Initiative, as we implement our principles of secure by design, secure by default, and secure operations. And we are focused on making continuous progress across the six pillars of the initiative: protect tenants and isolate production systems; protect identities and secrets; protect networks; protect engineering systems; monitor and detect threats; and accelerate response and remediation. As part of this commitment, all Microsoft employees now have security as a “core priority,” holding each one of us accountable for building secure products and services.\n\nWe are continuously applying what we are learning and translating it into security innovation for our customers. A great example is Copilot for Security, which we made generally available this year. It brings together LLMs with domain-specific skills informed by our threat intelligence and 78 trillion daily security signals to provide security teams with actionable insights.\n\nDevices & creativity\n\nThis year, we introduced an entirely new category of Windows PCs engineered to unleash the power of distributed AI across the cloud and edge. Copilot+ PCs are the fastest, most AI-ready Windows PCs ever built. They include a new system architecture designed to deliver best-in-class performance and breakthrough AI experiences. And we are working across our entire ecosystem to bring these to life, including with AMD, Intel, and Qualcomm, along with our OEM partners.\n\nProfessional social network\n\nLinkedIn continues to see accelerated member growth and record engagement. We surpassed 1 billion members for the first time this year, as we combine our unique data with this new generation of AI to transform how people learn, sell, and get hired. LinkedIn Marketing Solutions continues to be a leader in B2B digital advertising, helping companies deliver the right message, to the right audience, on a safe and trusted platform. And when it comes to our subscription businesses, Premium signups increased 51 percent, and we are adding even more value to our members and customers with new AI tools and skilling opportunities.\n\nSearch, ads, and news\n\nWith Copilot, we’re taking the first steps toward creating an AI companion, one that’s always by your side, helping you feel smarter and more supported through natural conversations. The refreshed Copilot app we introduced earlier this month delivers a more intuitive design with more digestible, speedy, and fluent answers. It now adapts to you with a warm tone and a distinct style, providing not only information but encouragement, feedback, and advice as you navigate life’s everyday challenges—no matter how big or small. And we’re adding advanced capabilities like Voice and Vision that make it both more useful and more natural.\n\nWe also continue to apply generative AI to pioneer new approaches to how people search and browse. Microsoft Bing and Edge both took share again this year. And we introduced Copilot Pro, providing access to the latest models for quick answers and higher-quality image creation, and access to Copilot for Microsoft 365 Personal and Family subscribers.\n\nThousands of news and entertainment publishers trust us to reach new audiences with Microsoft Start. And we are also helping advertisers increase their ROI. Copilot in Microsoft Ad Platform helps marketers create campaigns and troubleshoot using natural language.\n\nGaming                                                                          \n\nWe are bringing great games to more people on more devices. With our acquisition of Activision Blizzard King, which closed October 2023, we’ve added hundreds of millions of players to our ecosystem. We now have 20 franchises that have generated over $1 billion in lifetime revenue—from Candy Crush, Diablo, and Halo, to Warcraft, Elder Scrolls, and Gears of War. And with Xbox cloud gaming, we continue to innovate to offer players more ways to experience the games they love—where, when, and how they want. Finally, we brought four of our fan-favorite titles to Nintendo Switch and Sony PlayStation for the first time, as we continue to extend our content to new platforms.\n\nOUR MISSION\n\nAlthough we have made outstanding progress over the past year, we cannot take our permission to innovate—let alone operate—for granted. It is something we must earn.\n\nWe always say Microsoft will do well only if the world around us does well. And that’s why we are focused on four enduring commitments. They keep us grounded, serving as a guide as we make decisions, pushing us to ask critical questions to ensure the technology we create benefits everyone on the planet, as well as the planet itself.\n\nHow can we expand opportunity? \n\nWe are democratizing access to AI and the skills needed to harness its potential, ensuring that every person, organization, and community can benefit from the opportunities AI brings.\n\nThis year, we partnered with 375,000 nonprofits globally, providing $4.7 billion in donated and discounted technology—to help them build capacity, drive efficiencies, innovate, and increase their impact as they take on the world’s greatest challenges. Together with our partners, we also made significant strides in skilling. We have trained and certified 14.1 million people across 202 countries in digital skills as of June 2024. Over 80 percent of the learners were from groups furthest from opportunity in the digital economy.\n\nAnd our work doesn’t stop there. We must do more to accelerate the equitable adoption of AI and narrow the digital divide. That’s why we’ve launched new AI skilling initiatives in partnership with governments, educational institutions, industry, and civil society—to help millions of people learn to use generative AI, develop AI tools, and lead AI adoption. This includes people from underserved communities, with a focus on young people, women, rural communities, and the Global South, as well as employees of social impact organizations.\n\nHow can we earn trust? \n\nWe recognize that trust is earned, not given. And we remain committed to earning trust every day, spanning cybersecurity, trustworthy AI, privacy, and digital safety.\n\nOur Secure Future Initiative advances how we design, build, test, and operate our technology to ensure we deliver solutions that meet the highest possible standard of security. Our first SFI Progress Report highlights updates spanning culture, governance, technology, and operations, but we recognize that our work on security is never complete. We must and will do more. Our promise is to continually learn, improve, and adapt to the evolving needs of an increasingly complex security landscape.\n\nWe are focused on building AI that is trustworthy, meaning that it is secure, safe, and private. Our responsible AI practices, grounded in our foundational AI principles, help ensure we do this from the beginning. And we’re building on this commitment by introducing new product capabilities across our tech stack, ensuring that both our customers and developers are safeguarded at every level. Ultimately, these commitments and capabilities are key to fulfilling our mission. The world is looking to us to help defend and protect them, and we take that responsibility seriously.\n\nIn May, we published our first AI Transparency Report, which outlines how we build generative applications responsibly and support our customers. We also released Goals and Governance: Goals and Lessons for AI, which draws lessons from other globally governed technologies like civil aviation and nuclear power. Through our Accelerating Foundation Models Research program, we’ve made grants to hundreds of projects in AI safety and alignment research, AI-driven scientific discovery, and beneficial applications of AI. And we launched our Global Perspectives Responsible AI Fellowship program, designed to center the voices of AI experts from the Global South and enable us to better understand AI’s impact on developing countries.\n\nAs we drive AI innovation, we continue to respond to a changing privacy landscape. We provide tools to help our customers protect their privacy and control their data, and we have published several resources outlining our approach to privacy and AI for our consumer, commercial, and public sector customers.\n\nFinally, we continue our work to create safe experiences online and protect customers from illegal and harmful content and conduct. To bolster our efforts to prevent child sexual exploitation and abuse risks, we have made new commitments to safety by design in our AI services, joined the Tech Coalition’s Lantern Program, and proposed concrete actions that US policymakers can take to protect the public through regulatory and policy measures.\n\nHow can we protect fundamental rights? \n\nWe are committed to protecting fundamental rights—extending the benefits of technology while mitigating its potential harms. For us, this means promoting responsible business practices, expanding connectivity and accessibility, protecting democracy, and advancing a fair and inclusive society.\n\nOver the past year, as regulators increasingly required greater transparency and process consistency across corporate supply chains and human rights efforts, we ensured compliance with reporting and due diligence directives. Going forward, we’ll continue to respect global human rights and laws and take steps to mitigate the impact of our operations and our technology on the people in our value chain.\n\nAs we build and deploy more AI solutions, connectivity and accessibility are foundational. Since 2017, we’ve extended access to affordable high-speed internet to over 100 million people, including nearly 40 million in Africa. And we remain focused on building inclusive, accessible AI that empowers people across the spectrum of disability.\n\nMore than 4 billion people will vote this year in their respective elections, making it the biggest election year in history. At the Munich Security Conference in February, we came together with others across the tech sector and pledged to help prevent deceptive AI content from interfering with global elections. As part of this pledge, we have worked to empower campaigns, candidates, election officials, and voters to understand the risks of deceptive AI in elections and to take steps to protect themselves and democracies. To date, we’ve conducted deepfake trainings in over 20 countries. And our corresponding public awareness campaign has reached over 355 million people.\n\nLastly, we continued investing in both strategic national partnerships and community-based projects that leverage data and insights to enable changes that advance racial equity and fairness in the criminal legal system.\n\nHow can we advance sustainability? \n\nFinally, we are on a journey to build a more sustainable future, from addressing our own environmental footprint to empowering our customers and the world with the technology needed to meet the climate challenge. Over the past year, we have seen how AI can catalyze environmental progress in remarkable ways—from increasing the capacity of transmission lines to deliver renewable power, to the discovery of new materials to support energy production and storage, to empowering the workforce with sustainability skills.\n\nBut we also recognize the resource intensity of the infrastructure needed to yield these benefits, which is why we’re advancing the sustainability of AI, from design to construction to operations, all while working to improve the efficiency of these technologies. We’re also investing in innovation through Microsoft’s Climate Innovation Fund and our AI for Good Lab, advancing research and advocating for policies that can drive global impact.\n\nIn our latest Environmental Sustainability Report, we shared progress toward our 2030 commitments. We’re on track in several areas. Where we’re not yet on track, we’re mobilizing to accelerate our progress toward becoming carbon negative, water positive, and zero waste, as well as to protect and preserve ecosystems.\n\nWhen it comes to our carbon footprint, we continue to support clean electricity infrastructure through long-term investments to bring more power onto the grids where we operate. Since setting our carbon negative target, we have contracted over 34 gigawatts of renewable energy, including projects in 24 countries.\n\nIn our efforts to become water positive, we provided more than 1.5 million people with access to clean water and sanitation, achieving our water access target.\n\nOur journey to zero waste includes reducing waste at our campuses and datacenters and advancing circularity for cloud hardware, packaging, and devices. Our most recent report showed we had a reuse and recycle rate of 89.4 percent for servers and components across all cloud hardware.\n\nFinally, AI gives new opportunity for ecosystem and biodiversity management with solutions like AI-assisted bioacoustics. And we’re expanding collaboration with local communities to build and operate datacenters in ways that address local challenges and create greater benefits. This work is guided by our Sustainability Standards for new construction and our Datacenter Community Pledge.\n\nLearn more about our progress and learnings as we pursue our commitments in our annual Impact Summary.  \n\nOUR CULTURE\n\nJust as our culture has been critical in getting us to this point, it will be critical to our success going forward. At Microsoft, we think of our culture as being both input and output. To pursue new concepts, we need new capability. To build new capability, we need a culture that allows us to grow that capability long before it is conventional wisdom. For us, that means constantly exercising our growth mindset and confronting our fixed mindset—each one of us, every day. It is the only way we will succeed.\n\nOur growth mindset culture helps us in our continuous pursuit of high performance. It doesn’t matter what we said about our culture 10 years ago or even last year if we aren’t practicing it today—by anticipating the unmet and unarticulated needs of customers; by working together as One Microsoft to deliver the best end-to-end solutions and services; and by actively seeking diversity and embracing inclusion—to ensure our workforce represents the planet we serve and the products we build always meet our customers’ needs. In our latest Diversity & Inclusion Report, we share the ways our longstanding commitment to diversity and inclusion endures, and what we’re learning as we continue to hire, develop, and grow a global workforce that best supports each other and our customers. This is how we thrive—as individuals, as teams, and as an organization. And, when we thrive, we can help our customers and the world thrive too.\n\nGiving also remains core to our culture. This year, more than 106,000 employees gave $250 million (including company match) to nearly 35,000 nonprofits in 111 countries. And our employees volunteered over 1 million hours to causes they care about. I am deeply grateful for my colleagues’ dedication to making a difference. Together, we can continue to empower everyone around the world.\n\n**\n\nIn closing, this is a consequential time for our company, our industry, and the world. Ultimately, our mission requires that we translate technology into empowerment for everyone, into real-world impact. At the end of the day, that’s what really matters.\n\nNearly two years later, I can’t stop thinking about the Indian farmer I met in January 2023. He was able to apply for complex government farm subsidies using just his voice, thanks to an app built with GPT 3.5. It was remarkable. A frontier model developed on the West Coast of the US just months earlier was being used to directly improve the lives of rural farmers on the other side of the globe.\n\nThat rate of diffusion was unlike anything I had seen in my career. And the pace has only increased. Earlier this year, I was in Thailand, where I met developers using Phi-3 to optimize their operations just days after the small language model was released.\n\nTo me, that represents the true democratization of expertise. Where the internet era put information at our fingertips, AI is putting expertise at our fingertips. Impact like this is why we are in this industry, and it is what gives all of us at Microsoft deep meaning in our work.\n\nIt is why we are investing in our fundamentals, in our people, and in continued innovation—so that we can help others achieve more for the long term.\n\nIt is not an exaggeration to say that what each of us does right now with the unique opportunity we have been given will shape the future. And I look forward to seeing how all of us use Microsoft as a platform to make a difference—one customer, one community, one country at a time.\n\nSatya Nadella\n\nChairman and Chief Executive Officer\n\nOctober 18, 2024\n\nFinancial Review\n\nISSUER PURCHASES OF EQUITY SECURITIES, DIVIDENDS, AND STOCK PERFORMANCE\n\nMARKET AND STOCKHOLDERS\n\nOur common stock is traded on the NASDAQ Stock Market under the symbol MSFT. On July 25, 2024, there were 81,346 registered holders of record of our common stock.\n\nSHARE REPURCHASES AND DIVIDENDS\n\nShare Repurchases\n\nOn September 18, 2019, our Board of Directors approved a share repurchase program authorizing up to $40.0 billion in share repurchases. This share repurchase program commenced in February 2020 and was completed in November 2021.\n\nOn September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $60.0 billion in share repurchases. This share repurchase program commenced in November 2021, following completion of the program approved on September 18, 2019, has no expiration date, and may be terminated at any time. As of June 30, 2024, $10.3 billion remained of this $60.0 billion share repurchase program.\n\nWe repurchased the following shares of common stock under the share repurchase programs:\n\n(In millions)\nShares\n\nAmount\n\nShares\n\nAmount\n\nShares\n\nAmount\n\nYear Ended June 30,\n\n2024\n\n2023\n\n2022\n\nFirst Quarter\n11\n\n$ 3,560\n\n17\n\n$ 4,600\n\n21\n\n$ 6,200\n\nSecond Quarter\n7\n\n2,800\n\n20\n\n4,600\n\n20\n\n6,233\n\nThird Quarter\n7\n\n2,800\n\n18\n\n4,600\n\n26\n\n7,800\n\nFourth Quarter\n7\n\n2,800\n\n14\n\n4,600\n\n28\n\n7,800\n\nTotal\n32\n\n$ 11,960\n\n69\n\n$ 18,400\n\n95\n\n$ 28,033\n\nAll repurchases were made using cash resources. Shares repurchased during the first quarter of fiscal year 2022 were under the share repurchase program approved on September 18, 2019. Shares repurchased during the second quarter of fiscal year 2022 were under the share repurchase programs approved on September 18, 2019 and September 14, 2021. All other shares repurchased were under the share repurchase program approved on September 14, 2021. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $5.3 billion, $3.8 billion, and $4.7 billion for fiscal years 2024, 2023, and 2022, respectively.\n\nDividends\n\nOur Board of Directors declared the following dividends:\n\nDeclaration Date\nRecord Date\nPayment Date\nDividend\n\nPer Share\n\nAmount\n\nFiscal Year 2024\n\n(In millions)\n\nSeptember 19, 2023\nNovember 16, 2023\nDecember 14, 2023\n$ 0.75\n\n$ 5,574\n\nNovember 28, 2023\nFebruary 15, 2024\nMarch 14, 2024\n0.75\n\n5,573\n\nMarch 12, 2024\nMay 16, 2024\nJune 13, 2024\n0.75\n\n5,574\n\nJune 12, 2024\nAugust 15, 2024\nSeptember 12, 2024\n0.75\n\n5,575\n\nTotal\n\n$ 3.00\n\n$ 22,296\n\nFiscal Year 2023\n\nSeptember 20, 2022\nNovember 17, 2022\nDecember 8, 2022\n$ 0.68\n\n$ 5,066\n\nNovember 29, 2022\nFebruary 16, 2023\nMarch 9, 2023\n0.68\n\n5,059\n\nMarch 14, 2023\nMay 18, 2023\nJune 8, 2023\n0.68\n\n5,054\n\nJune 13, 2023\nAugust 17, 2023\nSeptember 14, 2023\n0.68\n\n5,051\n\nTotal\n\n$ 2.72\n\n$ 20,230\n\nThe dividend declared on June 12, 2024 was included in other current liabilities as of June 30, 2024.\n\nSTOCK PERFORMANCE\n\nCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*\n\nAmong Microsoft Corporation, the S&P 500 Index and the NASDAQ Computer Index\n\n6/19\n\n6/20\n\n6/21\n\n6/22\n\n6/23\n\n6/24\n\nMicrosoft Corporation\n100.00\n\n153.80\n\n206.72\n\n197.60\n\n264.54\n\n349.91\n\nS&P 500\n100.00\n\n107.51\n\n151.36\n\n135.29\n\n161.80\n\n201.54\n\nNASDAQ Computer\n100.00\n\n147.90\n\n222.50\n\n173.91\n\n228.85\n\n331.25\n\n$100 invested on 6/30/19 in stock or index, including reinvestment of dividends. Fiscal year ending June 30.\n\nBusiness\n\nNote About Forward-Looking Statements\n\nThis report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following sections: “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures About Market Risk” in our fiscal year 2024 Form 10-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.\n\nGeneral\n\nEmbracing Our Future\n\nMicrosoft is a technology company committed to making digital technology and artificial intelligence (“AI”) available broadly and doing so responsibly, with a mission to empower every person and every organization on the planet to achieve more. 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 strive to create local opportunity, growth, and impact in every country around the world.\n\nWe 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.\n\nWe believe AI should be as empowering across communities as it is powerful, and we’re committed to ensuring it is responsibly designed and built with safety and security from the outset.\n\nWhat We Offer\n\nFounded in 1975, we develop and support software, services, devices, and solutions that deliver new value for customers and help people and businesses realize their full potential.\n\nWe offer an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and we provide solution support and consulting services. We also deliver relevant online advertising to a global audience.\n\nOur products include operating systems, cross-device productivity and collaboration applications, server applications, business solution applications, desktop and server management tools, software development tools, and video games. We also design and sell devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.\n\nThe Ambitions That Drive Us\n\nTo achieve our vision, our research and development efforts focus on three interconnected ambitions:\n\nReinvent productivity and business processes.\n\nBuild the intelligent cloud and intelligent edge platform.\n\nCreate more personal computing.\n\nReinvent Productivity and Business Processes\n\nAt 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.\n\nOur growth depends on securely delivering continuous innovation and advancing our leading productivity and collaboration tools and services, including Microsoft 365, LinkedIn, and Dynamics 365. Microsoft 365 is an AI first platform that brings together Office, Windows, Copilot, and Enterprise Mobility + Security to help organizations empower their employees. 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.\n\nTogether, 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.\n\nBuild the Intelligent Cloud and Intelligent Edge Platform\n\nDigital transformation and adoption of AI continues to revolutionize more business workstreams for organizations in every sector across the globe. For enterprises, digital technology empowers employees, optimizes operations, engages customers, and in some cases, changes the very core of products and services. 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.\n\nOur cloud business benefits from three economies of scale: datacenters that deploy computational resources at significantly lower cost per unit than smaller ones; datacenters that coordinate and aggregate diverse customer, geographic, and application demand patterns, improving the utilization of computing, storage, and network resources; and multi-tenancy locations that lower application maintenance labor costs.\n\nThe Microsoft Cloud provides the best integration across the technology stack while offering openness, improving time to value, reducing costs, and increasing agility. As the foundation of the Microsoft Cloud, Azure uniquely offers hybrid consistency, developer productivity, data and AI capabilities, and trusted security and compliance.\n\nWe offer supercomputing power for AI at scale to run large workloads, complemented by our rapidly expanding portfolio of AI cloud services and hardware, which includes custom-built silicon and strong partnerships with chip manufacturers. 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.\n\nOur 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.\n\nGitHub 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.\n\nWe 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.\n\nOur 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.\n\nThe 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.\n\nNuance is a leader in conversational AI and ambient intelligence across industries, including healthcare, financial services, retail, and telecommunications. Microsoft and Nuance enable organizations to accelerate their business goals with security-focused, cloud-based solutions infused with AI.\n\nAs the rate and pace of cyberthreats continue to accelerate, security is a top priority for every organization. Microsoft offers customers integrated products addressing security, compliance, identity, management, and privacy across customers’ multi-cloud, application, and device assets. With Copilot for Security, Microsoft offers an AI cybersecurity product that enables security professionals to respond to cyberthreats quickly.\n\nWindows 365 enables users to stream a full Windows experience from the Microsoft Cloud to any device.\n\nCreate More Personal Computing\n\nWe strive to make computing more personal, enabling users to interact with technology in more intuitive, engaging, and dynamic ways.\n\nWindows 11 offers innovations focused on performance, productivity, and creativity, including Copilot in Windows. Windows 11 security and privacy features include operating system security, application security, and user and identity security. Dev Home is an open-source experience in Windows to help developer productivity. We are committed to designing and marketing first-party devices to help drive innovation, create new device categories, and stimulate demand in the Windows ecosystem. The Surface family includes Surface Pro, Surface Laptop, and other Surface products. Copilot+ PCs are a new class of Windows 11 PCs that are powered by a neural processing unit. These PCs use on-device AI for enhanced performance and features.\n\nCopilot is an AI assistant that helps users navigate the web, answer questions, and create content. Microsoft Edge is our fast and secure browser that helps protect users’ data and offers enhanced browsing capabilities including quick access to AI-powered tools, apps, and more. The AI-powered Bing search engine with Copilot delivers better search, more complete answers, and the ability to generate content.\n\nMicrosoft is expanding how billions of people globally access and play video games on PC, console, mobile, and cloud. We put game development front and center, backed by innovative hardware, experiences, and a subscription service, Xbox Game Pass, that allows those games to reach more players across more devices. Activision Blizzard, Inc. (“Activision Blizzard”), a leader in game development and an interactive entertainment content publisher, joined Microsoft in October 2023.\n\nOur Future Opportunity\n\nWe are focused on helping customers use the breadth and depth of the Microsoft Cloud to get the most value out of their digital spend while leading the AI platform wave across our solution areas. We continue to develop complete, intelligent solutions for our customers that empower people to be productive and collaborate, while safeguarding businesses and simplifying IT management. Our goal is to lead the industry in several distinct areas of technology over the long term, which we expect will translate to sustained growth. We are investing significant resources in:\n\nTransforming the workplace to deliver new modern, modular business applications, drive deeper insights, and improve how people communicate, collaborate, learn, work, and interact with one another.\n\nBuilding and running cloud-based services in ways that utilize ubiquitous computing to unleash new experiences and opportunities for businesses and individuals.\n\nApplying AI and ambient intelligence to drive insights, revolutionize many types of work and business processes, and provide substantive productivity gains using natural methods of communication.\n\nTackling security from all angles with our integrated, end-to-end solutions spanning security, compliance, identity, and management, across all clouds and platforms.\n\nInventing new gaming experiences that bring people together around their shared love for games on any devices and pushing the boundaries of innovation with console and PC gaming.\n\nUsing Windows to fuel our cloud business, grow our share of the PC market, and drive increased engagement with our services like Microsoft Edge, Bing, Microsoft Teams, Microsoft 365 Consumer, Xbox Game Pass, and more.\n\nOur future growth depends on our ability to transcend current product category definitions, business models, and sales motions.\n\nCorporate Social Responsibility\n\nCommitment to Sustainability\n\nMicrosoft’s approach to addressing climate change starts with the sustainability of our own business. In 2020, we committed to being a carbon negative, water positive, and zero waste company by 2030.\n\nSince announcing that commitment, we have seen major changes both in the technology sector and in our understanding of what it will take to meet our climate goals. New technologies, including generative AI, hold promise for new innovations that can help address the climate crisis. At the same time, the infrastructure and electricity needed for these technologies create new challenges for meeting sustainability commitments across the tech sector.\n\nIn May 2024, we released our Environmental Sustainability Report which looked back at our progress in several areas during fiscal year 2023. In four areas we are on track, and in each of these we see progress that has the potential to have global impact beyond our own sustainability work. These are:\n\nReducing our direct operational emissions (Scope 1 and 2).\n\nAccelerating carbon removal.\n\nDesigning for circularity to minimize waste and reusing cloud hardware.\n\nImproving biodiversity and protecting more land than we use.\n\nAt the same time, there are two areas where we’re not yet on track, and in each of these we are intensively engaged in work to identify and pursue additional breakthroughs. These are:\n\nReducing our indirect emissions (Scope 3).\n\nReducing our water use and replenishing more water than we consume in our datacenter operations.\n\nEven amid the challenges, we remain optimistic. We’re encouraged by ongoing progress across our campuses and datacenters, and throughout our value chain.\n\nAddressing Racial Injustice and Inequity\n\nIn 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.\n\nIn 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.\n\nWe 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.\n\nWe 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.\n\nInvesting in Digital Skills\n\nMicrosoft’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.\n\nGenerative 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.\n\nHUMAN CAPITAL RESOURCES\n\nMicrosoft 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.\n\nAs of June 30, 2024, we employed approximately 228,000 people on a full-time basis, 126,000 in the U.S. and 102,000 internationally. Of the total employed people, 86,000 were in operations, including product support and consulting services, datacenter operations, and manufacturing and distribution; 81,000 were in product research and development; 45,000 were in sales and marketing; and 16,000 were in general and administration. Certain employees are subject to collective bargaining agreements.\n\nWe design our programs to attract, reward, and retain top talent, enable our employees’ continual growth, and reinforce our culture and values. 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.\n\nDiversity 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.\n\nWe have invested significantly in employee wellbeing and offer a differentiated benefits package which includes many physical, emotional, and financial wellness programs. Our Occupational Health and Safety program helps to protect employees’ safety while they are working. We also have introduced Hybrid Workplace Flexibility guidance to better support leaders, managers, and employees in hybrid work scenarios.\n\nWe believe providing employees with access to continual learning enables them to drive impact for the company. We provide individuals and teams with access to first and third-party content resources across professions, disciplines, and roles, and offer skilling opportunities to support employees’ growth while driving organizations’ needs.\n\nOur employee listening systems enable us to gather feedback directly from our workforce to inform our programs and employee needs globally, giving us real-time insights into ways we can support our employees. As a company, we will continue to leverage data and research to inform decision making, balancing the needs of the business, team, and individual.\n\nOPERATING SEGMENTS\n\nWe 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.\n\nAdditional information on our operating segments and geographic and product information is contained in Note 19 – Segment Information and Geographic Data of the Notes to Financial Statements.\n\nOur reportable segments are described below.\n\nProductivity and Business Processes\n\nOur 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:\n\nOffice Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Copilot for Microsoft 365.\n\nOffice Consumer, including Microsoft 365 Consumer and Copilot Pro subscriptions, Office licensed on-premises, and other Office services.\n\nLinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.\n\nDynamics business solutions, 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.\n\nOffice Commercial\n\nOffice Commercial is designed to increase personal, team, and organizational productivity through a range of products and 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 value to our core product and service offerings to span AI and productivity categories such as communication, collaboration, analytics, security, and compliance. Office 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 Office 365.\n\nOffice Consumer\n\nOffice 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. Office Consumer 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. Office Consumer Services revenue is mainly affected by the demand for communication and storage through Skype, Outlook.com, and OneDrive, which is largely driven by subscriptions, advertising, and the sale of minutes.\n\nLinkedIn\n\nLinkedIn connects the world’s professionals to make them more productive and successful and transforms the way companies hire, market, sell, and learn. Our vision is to create economic opportunity for every member of the global workforce through the ongoing development of the world’s first Economic Graph, a digital representation of the global economy. 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. Talent Solutions provide insights for workforce planning and tools to hire, nurture, and develop talent. Talent Solutions also includes Learning Solutions, which help businesses close critical skills gaps in times where companies are having to do more with existing talent. Marketing Solutions help companies reach, engage, and convert their audiences at scale. Premium Subscriptions enable professionals to manage their professional identity, grow their network, find jobs, access knowledge, and connect with talent through additional services like premium search. Sales Solutions help companies strengthen customer relationships, empower teams with digital selling tools, and acquire new opportunities. Growth will depend on our ability to increase the number of LinkedIn members and our ability to continue offering insight and AI-enabled services that provide value for our members and increase their engagement. 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.\n\nDynamics\n\nDynamics 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 other low code application development platforms and AI offerings, 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.\n\nCompetition\n\nCompetitors to Office include software and global application vendors, such as Apple, Cisco Systems, Google, Meta, Proofpoint, Slack, Symantec, Zoom, and numerous web-based and mobile application competitors as well as local application developers. Apple distributes versions of its pre-installed application software, such as email and calendar products, through its PCs, tablets, and phones. Cisco Systems is using its position in enterprise communications equipment to grow its unified communications business. Google provides a hosted messaging and productivity suite. Meta offers communication tools to enable productivity and engagement within organizations. Proofpoint and Symantec provide security solutions across email security, information protection, and governance. Slack provides teamwork and collaboration software. Zoom offers videoconferencing and cloud phone solutions. Web-based offerings competing with individual applications have also positioned themselves as alternatives to our products and services. We compete by providing powerful, flexible, secure, integrated industry-specific, and easy-to-use productivity and collaboration tools and services that create comprehensive solutions and work well with technologies our customers already have both on-premises or in the cloud.\n\nLinkedIn faces competition from online professional networks, recruiting companies, talent management companies, and larger companies that are focusing on talent management and human resource services; job boards; traditional recruiting firms; and companies that provide learning and development products and services. Marketing Solutions competes with online and offline outlets that generate revenue from advertisers and marketers, and Sales Solutions competes with online and offline outlets for companies with lead generation and customer intelligence and insights.\n\nDynamics competes with cloud-based and on-premises business solution providers such as Oracle, Salesforce, SAP, Service Now, UI Path, and WorkDay.\n\nIntelligent Cloud\n\nOur Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business and developers. This segment primarily comprises:\n\nServer 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.\n\nEnterprise and partner services, including Enterprise Support Services, Industry Solutions, Nuance professional services, Microsoft Partner Network, and Learning Experience.\n\nServer Products and Cloud Services\n\nAzure is a comprehensive set of cloud services that offer developers, IT professionals, and enterprises freedom to build, deploy, and manage applications on any platform or device. Customers can use Azure through our global network of datacenters for computing, networking, storage, mobile and web application services, AI, Internet of Things (“IoT”), cognitive services, and machine learning. Azure enables customers to devote more resources to development and use of applications that benefit their organizations, rather than managing on-premises hardware and software. Azure revenue is mainly affected by infrastructure-as-a-service and platform-as-a-service consumption-based services, and per user-based services such as Enterprise Mobility + Security.\n\nAzure AI offerings provide a competitive advantage as companies seek ways to optimize and scale their business with machine learning. With Azure’s purpose-built, AI-optimized infrastructure, customers can use a variety of large language models and developer tools to create the next generation of AI apps and services.\n\nOur server products are designed to make IT professionals, developers, and their systems more productive and efficient. Server software is integrated server infrastructure and middleware designed to support software applications built on the Windows Server operating system. This includes the server platform, database, business intelligence, storage, management and operations, virtualization, service-oriented architecture platform, security, and identity software. We also license standalone and software development lifecycle tools for software architects, developers, testers, and project managers. Server products revenue is mainly affected by purchases through volume licensing programs, licenses sold to original equipment manufacturers (“OEM”), and retail packaged products. CALs provide access rights to certain server products, including SQL Server and Windows Server, and revenue is reported along with the associated server product.\n\nNuance and GitHub include both cloud and on-premises offerings. Nuance provides healthcare and enterprise AI solutions. GitHub provides a collaboration platform and code hosting service for developers.\n\nEnterprise and Partner Services\n\nEnterprise and Partner Services, including Enterprise Support Services, Industry Solutions, Nuance professional services, Microsoft Partner Network, and Learning Experience, assist customers in developing, deploying, and managing Microsoft server solutions, Microsoft desktop solutions, and Nuance conversational AI and ambient intelligent solutions, along with providing training and certification to developers and IT professionals on various Microsoft products.\n\nCompetition\n\nAzure faces diverse competition from companies such as Amazon, Broadcom, Google, IBM, Oracle, and open source offerings. Azure’s competitive advantage includes enabling a hybrid cloud, allowing deployment of existing datacenters with our public cloud into a single, cohesive infrastructure, and the ability to run at a scale that meets the needs of businesses of all sizes and complexities. Our AI offerings compete with AI products from hyperscalers such as Amazon and Google, as well as products from other emerging competitors, including Anthropic, OpenAI, Meta, and other open source offerings, many of which are also current or potential partners. Our Azure Security offerings include our cloud security solution and security information and event management solution, which compete with companies such as Palo Alto Networks and Cisco. Our Enterprise Mobility + Security offerings also compete with products from a range of competitors including identity vendors, security solution vendors, and numerous other security point solution vendors. We believe our cloud’s global scale, coupled with our broad portfolio of identity and security solutions, allows us to effectively solve complex cybersecurity challenges for our customers and differentiates us from the competition.\n\nOur server products face competition from a wide variety of server operating systems and applications offered by companies with a range of market approaches. Vertically integrated computer manufacturers such as Hewlett-Packard, IBM, and Oracle offer their own versions of the Unix operating system preinstalled on server hardware and nearly all computer manufacturers offer server hardware for the Linux operating system.\n\nWe compete to provide enterprise-wide computing and point solutions with numerous commercial software vendors that offer solutions and middleware technology platforms, software applications for connectivity, security, hosting, database, and e-business servers. IBM and Oracle lead a group of companies that compete with our enterprise-wide computing solutions. Commercial competitors for our server applications for PC-based distributed client-server environments include Broadcom, IBM, and Oracle. Our web application platform software competes with open source software such as Apache, Linux, MySQL, and PHP. In middleware, we compete against Java vendors.\n\nOur database, business intelligence, and data warehousing solutions offerings compete with products from Databricks, IBM, Oracle, SAP, Snowflake, and other companies. Our system management solutions compete with server management and server virtualization platform providers, such as BMC, Broadcom, Hewlett-Packard, and IBM. Our products for software developers compete against offerings from Adobe, IBM, Oracle, and other companies, and also against open source projects, including Eclipse (sponsored by IBM, Oracle, and SAP), PHP, and Ruby on Rails.\n\nWe believe our server products provide customers with advantages in performance, total costs of ownership, and productivity by delivering superior applications, development tools, compatibility with a broad base of hardware and software applications, security, and manageability.\n\nOur Enterprise and Partner Services business competes with a wide range of companies that provide strategy and business planning, application development, and infrastructure services, including multinational consulting firms and small niche businesses focused on specific technologies.\n\nMore Personal Computing\n\nOur More Personal Computing segment consists of products and services that put customers at the center of the experience with our technology. This segment primarily comprises:\n\nWindows, including Windows OEM licensing and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows Internet of Things.\n\nDevices, including Surface, HoloLens, and PC accessories.\n\nGaming, including Xbox hardware and Xbox content and services, comprising first-party content (such as Activision Blizzard) and third-party content, including games and in-game content; Xbox Game Pass and other subscriptions; Xbox Cloud Gaming; advertising; third-party disc royalties; and other cloud services.\n\nSearch and news advertising, comprising Bing (including Copilot), Microsoft News, Microsoft Edge, and third-party affiliates.\n\nWindows\n\nThe Windows operating system is designed to deliver a more personal computing experience for users by enabling consistency of experience, applications, and information across their devices. Windows OEM revenue is impacted significantly by the number of Windows operating system licenses purchased by OEMs, which they pre-install on the devices they sell. In addition to computing device market volume, Windows OEM revenue is impacted by:\n\nThe mix of computing devices based on form factor and screen size.\n\nDifferences in device market demand between developed markets and growth markets.\n\nGrowth of the AI PC category\n\nAttachment of Windows to devices shipped.\n\nCustomer mix between consumer, small and medium businesses, and large enterprises.\n\nChanges in inventory levels in the OEM channel.\n\nPricing changes and promotions, pricing variation that occurs when the mix of devices manufactured shifts from local and regional system builders to large multinational OEMs, and different pricing of Windows versions licensed.\n\nConstraints in the supply chain of device components.\n\nPiracy.\n\nWindows Commercial revenue, which includes volume licensing of the Windows operating system and Windows cloud services such as Microsoft Defender for Endpoint, is affected mainly by the demand from commercial customers for Microsoft 365 and our advanced security offerings. Windows Commercial revenue often reflects the number of information workers in a licensed enterprise and is relatively independent of the number of PCs sold in a given year.\n\nPatent licensing includes our programs to license patents we own for use across a broad array of technology areas, including mobile devices and cloud offerings.\n\nWindows IoT extends the power of Windows and the cloud to intelligent systems by delivering specialized operating systems, tools, and services for use in embedded devices.\n\nDevices\n\nWe design and sell devices, such as Surface (including Copilot+ PCs), HoloLens, and PC accessories. Our devices are designed to enable people and organizations to connect to the people and content that matter most using Windows and integrated Microsoft products and services. Surface is designed to help organizations, students, and consumers be more productive. Growth in Devices is dependent on total PC shipments, the ability to attract new customers, our product roadmap, and expanding into new categories.\n\nGaming\n\nOur gaming platform is designed to provide a variety of entertainment through a unique combination of content, community, and cloud services. Our game content is developed through a collection of first-party studios creating iconic and differentiated gaming experiences. We continue to invest in 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 over 400 first- and third-party console and PC titles.\n\nThe gamer remains at the heart of the Xbox ecosystem. We are identifying new opportunities to attract gamers across a variety of different end points through our first- and third-party content and business diversification across subscriptions, ads, and digital stores. We’ve seen new devices from third-party manufacturers along with key PC and mobile end points that help us empower gamers to play in a way that is most convenient to them. We are focused on growing the platform and expanding to new ecosystems to engage as many gamers as possible.\n\nXbox enables people to connect and share online gaming experiences that are accessible on Xbox consoles, Windows-enabled devices, and other devices. Xbox is designed to benefit users by providing access to a network of certified applications and services and to benefit our developer and partner ecosystems by providing access to a large customer base. Xbox revenue is mainly affected by subscriptions and sales of first- and third-party content, as well as advertising. Growth of our Gaming business is determined by the overall active user base through Xbox enabled content, availability of games, providing exclusive game content that gamers seek, the computational power and reliability of the devices used to access our content and services, and the ability to create new experiences.\n\nSearch and News Advertising\n\nOur Search and news advertising business is designed to deliver relevant search, native, and display advertising to a global audience. Our Microsoft Edge browser and Bing search engine with Copilot are key tools to enable user acquisition and engagement, while our technology platform enables accelerated delivery of digital advertising solutions. In addition to first-party tools, we have several partnerships with companies, such as Yahoo, through which we provide and monetize search offerings. Growth depends on our ability to attract new users, understand intent, and match intent with relevant content on advertising offerings.\n\nCompetition\n\nWindows faces competition from various software products and from alternative platforms and devices, mainly from Apple and Google, and Microsoft Defender for Endpoint competes with CrowdStrike on endpoint security solutions. We believe Windows competes effectively by giving customers choice, value, flexibility, security, an easy-to-use interface, and compatibility with a broad range of hardware and software applications, including those that enable productivity.\n\nDevices face competition from various computer, tablet, and hardware manufacturers who offer a unique combination of high-quality industrial design and innovative technologies across various price points. These manufacturers, many of which are also current or potential partners and customers, include Apple and our Windows OEMs.\n\nXbox and our cloud gaming services face competition from various online gaming ecosystems and game streaming services, including those operated by Amazon, Apple, Meta, and Tencent. We also compete with other providers of entertainment services such as video streaming platforms. Our gaming platform competes with console platforms from Nintendo and Sony, both of which have a large, established base of customers. We believe our gaming platform is effectively positioned against, and uniquely differentiated from, competitive products and services based on significant innovation in hardware architecture, user interface, developer tools, online gaming and entertainment services, and continued strong content from our own first-party game franchises as well as other digital content offerings.\n\nOur Search and news advertising business competes with Google, OpenAI, and a wide array of websites, social platforms like Meta, and portals that provide content and online offerings to end users.\n\nOPERATIONS\n\nWe have regional operations service centers that support our operations, including customer contract and order processing, billing, credit and collections, customer lifecycle operations, information processing, and vendor management and logistics. The centers in Ireland and Romania support the African, European, and Middle East regions; the centers in India and Ireland support the Asia-Pacific region; and the centers in Arlington, Virginia, Atlanta, Georgia, Charlotte, North Carolina, Fargo, North Dakota, Fort Lauderdale, Florida, Redmond, Washington, Reno, Nevada, and San Jose, Costa Rica support the Americas regions.\n\nIn addition to our operations centers, we also operate datacenters throughout each of these regions. We continue to identify and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services. Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units (“GPUs”) and other components.\n\nOur devices are primarily manufactured by third-party contract manufacturers. For the majority of our products, we have the ability to use other manufacturers if a current vendor becomes unavailable or unable to meet our requirements. However, some of our products contain certain components for which there are very few qualified suppliers. Extended disruptions at these suppliers could impact our ability to manufacture devices on time to meet consumer demand.\n\nRESEARCH AND DEVELOPMENT\n\nProduct and Service Development, and Intellectual Property\n\nWe develop most of our products and services internally through the following engineering groups.\n\nCloud and AI – focuses on making IT professionals, developers, partners, independent software vendors, and their systems more productive and efficient through development of Azure AI platform and cloud infrastructure, server, database, CRM, ERP, software development tools and services, AI cognitive services, and other business process applications and services for enterprises.\n\nStrategic Missions and Technologies – focuses on incubating technical products and support solutions with transformative potential for the future of cloud computing and continued company growth, such as quantum computing and advanced AI for science.\n\nExperiences and Devices – focuses on delivering high value end-user experiences across our products, services, and devices, including Microsoft 365, Windows, Microsoft Teams, and the Surface line of devices.\n\nMicrosoft AI – focuses on delivering online experiences targeted at consumers (including Bing, Copilot, Start/MSN, and other advertising-based services) and developing advanced AI models.\n\nMicrosoft Security – focuses on delivering a comprehensive portfolio of services that protect our customers’ digital infrastructure through cloud platform and application security, data protection and governance, identity and network access, and device management.\n\nTechnology and Research – focuses on fundamental research, product and business incubations, and forward-looking AI innovations that span infrastructure, services, and applications. This engineering group includes Microsoft Research, one of the world’s largest corporate research organizations, which focuses on fundamental research in AI, computer science, and a broad range of other disciplines.\n\nLinkedIn – focuses on our services that transform the way professionals grow their network and find jobs and the way businesses hire, market, sell, and learn.\n\nGaming – focuses on developing hardware, content, and services across a large range of platforms to help grow our user base through game experiences and social interaction.\n\nInternal development allows us to maintain competitive advantages that come from product differentiation and closer technical control over our products and services. It also gives us the freedom to decide which modifications and enhancements are most important and when they should be implemented. We strive to obtain information as early as possible about changing usage patterns and hardware advances that may affect software and hardware design. Before releasing new software platforms, and as we make significant modifications to existing platforms, we provide application vendors with a range of resources and guidelines for development, training, and testing. Generally, we also create product documentation internally.\n\nWe protect our intellectual property investments in a variety of ways. We work actively in the U.S. and internationally to ensure the enforcement of copyright, trademark, trade secret, and other protections that apply to our software and hardware products, services, business plans, and branding. We are a leader among technology companies in pursuing patents and currently have a portfolio of over 63,000 U.S. and international patents issued and over 23,000 pending worldwide. While we employ much of our internally-developed intellectual property in our products and services, we also engage in outbound licensing of specific patented technologies that are incorporated into licensees’ products. From time to time, we enter into broader cross-license agreements with other technology companies covering entire groups of patents. We may also purchase or license technology that we incorporate into our products and services. At times, we make select intellectual property broadly available at no or low cost to achieve a strategic objective, such as promoting industry standards, advancing interoperability, supporting societal and/or environmental efforts, or attracting and enabling our external development community. Our engagement with open source software also causes us to license our intellectual property rights broadly in certain situations.\n\nWhile it may be necessary in the future to seek or renew licenses relating to various aspects of our products and services, we believe, based upon past experience and industry practice, such licenses generally can be obtained on commercially reasonable terms. We believe our continuing research and product development are not materially dependent on any single license or other agreement with a third party relating to the development of our products.\n\nInvesting in the Future\n\nOur success is based on our ability to create new and compelling products, services, and experiences for our users, to initiate and embrace disruptive technology trends, to enter new geographic and product markets, and to drive broad adoption of our products and services. We invest in a range of emerging technology trends and breakthroughs that we believe offer significant opportunities to deliver value to our customers and growth for the company. Based on our assessment of key technology trends, we maintain our long-term commitment to research and development across a wide spectrum of technologies, tools, and platforms spanning digital work and life experiences, cloud computing, AI, devices, and operating systems.\n\nWhile our main product research and development facilities are located in Redmond, Washington, we also operate research and development facilities in other parts of the U.S. and around the world. This global approach helps us remain competitive in local markets and enables us to continue to attract top talent from across the world.\n\nWe plan to continue to make significant investments in a broad range of product research and development activities, and as appropriate we will coordinate our research and development across operating segments and leverage the results across the company. This includes continuing to support fundamental research, which provides us with a unique perspective on future trends and contributes to our innovation.\n\nDISTRIBUTION, SALES, AND MARKETING\n\nWe market and distribute our products and services through the following channels: OEMs, direct, and distributors and resellers. 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; 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 services.\n\nOEMs\n\nWe distribute our products and services through OEMs that pre-install our software on new devices and servers they sell. The largest component of the OEM business is the Windows operating system pre-installed on devices. OEMs also sell devices pre-installed with other Microsoft products and services, including applications such as Office and the capability to subscribe to Microsoft 365 Consumer.\n\nThere are two broad categories of OEMs. The largest category of OEMs are direct OEMs as our relationship with them is managed through a direct agreement between Microsoft and the OEM. We have distribution agreements covering one or more of our products with virtually all the multinational OEMs, including Dell, Hewlett-Packard, Lenovo, and with many regional and local OEMs. The second broad category of OEMs are system builders consisting of lower-volume PC manufacturers, which source Microsoft software for pre-installation and local redistribution primarily through the Microsoft distributor channel rather than through a direct agreement or relationship with Microsoft.\n\nDirect\n\nMany organizations that license our products and services transact directly with us through Enterprise Agreements and Enterprise Services contracts, with sales support from system integrators, independent software vendors, web agencies, and partners that advise organizations on licensing our products and services (“Enterprise Agreement Software Advisors” or “ESA”). Microsoft offers direct sales programs targeted to reach small, medium, and corporate customers, in addition to those offered through the reseller channel. A large network of partner advisors support many of these sales.\n\nWe also sell commercial and consumer products and services directly to customers, such as cloud services, search, and gaming, through our digital marketplaces and online stores. Additionally, our Microsoft Experience Centers are designed to facilitate deeper engagement with our partners and customers across industries.\n\nDistributors and Resellers\n\nOrganizations also license our products and services indirectly, primarily through licensing solution partners (“LSP”), distributors, value-added resellers (“VAR”), and retailers. Although each type of reselling partner may reach organizations of all sizes, LSPs are primarily engaged with large organizations, distributors resell primarily to VARs, and VARs typically reach small and medium organizations. ESAs are also typically authorized as LSPs and operate as resellers for our other volume licensing programs. Microsoft Cloud Solution Provider is our main partner program for reselling cloud services.\n\nWe distribute our retail packaged products primarily through independent non-exclusive distributors, authorized replicators, resellers, and retail outlets. Individual consumers obtain these products primarily through retail outlets. We distribute our devices through third-party retailers. We have a network of field sales representatives and field support personnel that solicit orders from distributors and resellers and provide product training and sales support.\n\nOur Dynamics business solutions are also licensed to enterprises through a global network of channel partners providing vertical solutions and specialized services.\n\nLICENSING OPTIONS\n\nWe offer options for organizations of varying sizes that want to purchase our cloud services and on-premise software. We license these organizations under volume licensing agreements to allow the customer to acquire multiple licenses of products and services instead of having to acquire separate licenses through retail channels. These volume licensing programs have varying programmatic requirements and benefits to best meet the needs of our customers.\n\nSoftware Assurance (“SA”) conveys rights to new software and upgrades for perpetual licenses released over the contract period. It also provides support, tools, training, and other licensing benefits to help customers deploy and use software efficiently. SA is required to be purchased with certain volume licensing agreements and is an optional purchase with others.\n\nVolume Licensing Programs\n\nEnterprise Agreement\n\nEnterprise Agreements offer large organizations a manageable volume licensing program that gives them the flexibility to buy cloud services and software licenses under one agreement. Enterprise Agreements are designed for medium or large organizations that want to license Microsoft products and services organization-wide over a three-year period. Organizations can elect to purchase perpetual licenses (covered with SA) and/or subscribe to cloud services.\n\nMicrosoft Customer Agreement\n\nMicrosoft Customer Agreements are simplified purchase agreements presented, accepted, and stored through a digital experience. Microsoft Customer Agreements are non-expiring agreements that are designed to support all customers over time, whether purchasing through a partner or directly from Microsoft.\n\nMicrosoft Online Subscription Agreement\n\nMicrosoft Online Subscription Agreements are designed for small and medium organizations that want to subscribe to, activate, provision, and maintain cloud services seamlessly and directly via the web. These agreements allow customers to acquire monthly or annual subscriptions for cloud-based services.\n\nMicrosoft Products and Services Agreement\n\nMicrosoft Products and Services Agreements are designed for medium and large organizations that want to license cloud services and on-premises software as needed, with no organization-wide commitment, under a single, non-expiring agreement. Organizations purchase perpetual licenses or subscribe to licenses. SA is optional for customers that purchase perpetual licenses.\n\nOpen Value\n\nOpen Value agreements are a simple, cost-effective way to acquire the latest Microsoft technology. These agreements are designed for small and medium organizations that want to license cloud services and on-premises software over a three-year period. Under Open Value agreements, organizations can elect to purchase perpetual licenses or subscribe to licenses and SA is included.\n\nSelect Plus\n\nA Select Plus agreement is designed for government and academic organizations to acquire on-premises licenses at any affiliate or department level, while realizing advantages as one organization. Organizations purchase perpetual licenses and SA is optional.\n\nPartner Programs\n\nThe Microsoft Cloud Solution Provider Program offers customers an easy way to license the cloud services they need in combination with the value-added services offered by their systems integrator, managed services provider, or cloud reseller partner. Partners in this program can easily package their own products and services to directly provision, manage, and support their customer subscriptions.\n\nThe Microsoft Services Provider License Agreement allows hosting service providers and independent software vendors who want to license eligible Microsoft software products to provide hosted applications and software services to their end customers. Partners license software over a three-year period and are billed monthly based on units licensed.\n\nThe Independent Software Vendor Royalty Program enables partners to integrate Microsoft products into other applications and then license the unified business solution to their end users.\n\nCUSTOMERS\n\nOur customers include individual consumers, small and medium organizations, large global enterprises, public-sector institutions, Internet service providers, application developers, and OEMs. Our practice is to ship our products promptly upon receipt of purchase orders from customers; consequently, backlog is not significant.\n\nGOVERNMENT REGULATION\n\nWe 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, advertising, and online content. How these laws and regulations apply to our business is often unclear, subject to change over time, and sometimes may be inconsistent from jurisdiction to jurisdiction. To comply with the accelerating global regulatory obligations, we established a regulatory governance framework and to create a repeatable system-focused approach to regulatory governance with an initial focus on four domains: Responsible AI, Privacy, Digital Safety, and Cybersecurity. The framework is designed to help us maintain customer trust and confidence in our products, remain in compliance with regulators around the globe, and effectively scale our capability to address the growing number of complex regulations. Through the framework, our legal and regulatory subject matter experts ingest regulations, develop standards and implementation guidance, and, when appropriate, work with our engineers to develop and implement products to monitor compliance. 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 our programs and processes. While we intended to create a unified approach to regulatory compliance, some of the programs and processes 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.\n\nFor a description of the risks we face related to regulatory matters, refer to Risk Factors in our fiscal year 2024 Form 10-K.\n\nAVAILABLE INFORMATION\n\nOur Internet address is www.microsoft.com. At our Investor Relations website, www.microsoft.com/investor, we make available free of charge a variety of information for investors. Our goal is to maintain the Investor Relations website as a portal through which investors can easily find or navigate to pertinent information about us, including:\n\nOur annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the Securities and Exchange Commission (“SEC”) at www.sec.gov.\n\nInformation on our business strategies, financial results, and metrics for investors.\n\nAnnouncements of investor conferences, speeches, and events at which our executives talk about our product, service, and competitive strategies. Archives of these events are also available.\n\nPress releases on quarterly earnings, product and service announcements, legal developments, and international news.\n\nCorporate governance information including our articles of incorporation, bylaws, governance guidelines, committee charters, codes of conduct and ethics, global corporate social responsibility initiatives, and other governance-related policies.\n\nOther news and announcements that we may post from time to time that investors might find useful or interesting.\n\nOpportunities to sign up for email alerts to have information pushed in real time.\n\nWe 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 sustainability, responsible sourcing, accessibility, digital trust, and public policy engagement.\n\nThe information found on these websites is not part of, or incorporated by reference into, this or any other report we file with, or furnish to, the SEC. In addition to these channels, we use social media to communicate to the public. It is possible that the information we post on social media could be deemed to be material to investors. We encourage investors, the media, and others interested in Microsoft to review the information we post on the social media channels listed on our Investor Relations website.\n\nDiscussion & Analysis\n\nMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\nThe following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Microsoft Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements. This section generally discusses the results of our operations for the year ended June 30, 2024 compared to the year ended June 30, 2023. For a discussion of the year ended June 30, 2023 compared to the year ended June 30, 2022, please refer to “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, 2023.\n\nOVERVIEW\n\nMicrosoft is a technology company committed to making digital technology and artificial intelligence (“AI”) available broadly and doing so responsibly, with a mission to empower every person and every organization on the planet to achieve more. We create platforms and tools, powered by AI, that deliver innovative solutions that meet the evolving needs of our customers.\n\nWe generate revenue by offering a wide range of cloud-based solutions, content, and other services to people and businesses; licensing and supporting an array of software products; delivering relevant online advertising to a global audience; and designing and selling devices. Our most significant expenses are related to compensating employees; supporting and investing in our cloud-based services, including datacenter operations; designing, manufacturing, marketing, and selling our other products and services; and income taxes.\n\nHighlights from fiscal year 2024 compared with fiscal year 2023 included:\n\nMicrosoft Cloud revenue increased 23% to $137.4 billion.\n\nOffice Commercial products and cloud services revenue increased 14% driven by Office 365 Commercial growth of 16%.\n\nOffice Consumer products and cloud services revenue increased 4% and Microsoft 365 Consumer subscribers grew to 82.5 million.\n\nLinkedIn revenue increased 9%.\n\nDynamics products and cloud services revenue increased 19% driven by Dynamics 365 growth of 24%.\n\nServer products and cloud services revenue increased 22% driven by Azure and other cloud services growth of 30%.\n\nWindows 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%.\n\nDevices revenue decreased 15%.\n\nXbox content and services revenue increased 50% driven by 44 points of net impact from the Activision Blizzard Inc. (“Activision Blizzard”) acquisition. The net impact reflects the change of Activision Blizzard content from third-party to first-party.\n\nSearch and news advertising revenue excluding traffic acquisition costs increased 12%.\n\nOn 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. Refer to Note 8 – Business Combinations of the Notes to Financial Statements for further discussion.\n\nIndustry Trends\n\nOur industry is dynamic and highly competitive, with frequent changes in both technologies and business models. Each industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the industry and our business. At Microsoft, we push the boundaries of what is possible through a broad range of research and development activities that seek to identify and address the changing demands of customers and users, industry trends, and competitive forces.\n\nEconomic Conditions, Challenges, and Risks\n\nThe markets for software, devices, and cloud-based services are dynamic and highly competitive. Our competitors are developing new software and devices, while also deploying competing cloud-based services for consumers and businesses. The devices and form factors customers prefer evolve rapidly, influencing how users access services in the cloud and, in some cases, the user’s choice of which suite of cloud-based services to use. Aggregate demand for our software, services, and devices is also correlated to global macroeconomic and geopolitical factors, which remain dynamic. We must continue to evolve and adapt over an extended time in pace with this changing environment.\n\nThe investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and may decrease our operating margins. We continue to identify and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services. Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units (“GPUs”) and other components. Our devices are primarily manufactured by third-party contract manufacturers. For the majority of our products, we have the ability to use other manufacturers if a current vendor becomes unavailable or unable to meet our requirements. However, some of our products contain certain components for which there are very few qualified suppliers. Extended disruptions at these suppliers could impact our ability to manufacture devices on time to meet consumer demand.\n\nOur success is highly dependent on our ability to attract and retain qualified employees. We hire a mix of university and industry talent worldwide. We compete for talented individuals globally by offering an exceptional working environment, broad customer reach, scale in resources, the ability to grow one’s career across many different products and businesses, and competitive compensation and benefits.\n\nOur international operations provide a significant portion of our total revenue and expenses. Many of these revenue and expenses are denominated in currencies other than the U.S. dollar. As a result, changes in foreign exchange rates may significantly affect revenue and expenses. 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 2024.\n\nRefer to Risk Factors in our fiscal year 2024 Form 10-K for a discussion of these factors and other risks.\n\nSeasonality\n\nOur revenue fluctuates quarterly and is generally higher in the fourth quarter of our fiscal year. Fourth quarter revenue is driven by a higher volume of multi-year contracts executed during the period.\n\nChange in Accounting Estimate\n\nIn 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.\n\nReportable Segments\n\nWe report our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The segment amounts included in MD&A are presented on a basis consistent with our internal management reporting.\n\nAdditional information on our reportable segments is contained in Note 19 – Segment Information and Geographic Data of the Notes to Financial Statements.\n\nMetrics\n\nWe use metrics in assessing the performance of our business and to make informed decisions regarding the allocation of resources. We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into performance trends, and reflect the continued evolution of our products and services. Our commercial and other business metrics are fundamentally connected based on how customers use our products and services. The metrics are disclosed in the MD&A or the Notes to Financial Statements. Financial metrics are calculated based on financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and growth comparisons relate to the corresponding period of last fiscal year.\n\nIn 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.\n\nCommercial\n\nOur commercial business primarily consists of Server products and cloud services, Office Commercial, Windows Commercial, the commercial portion of LinkedIn, Enterprise and partner services, and Dynamics. Our commercial metrics allow management and investors to assess the overall health of our commercial business and include leading indicators of future performance.\n\nCommercial remaining performance obligation\n\nCommercial portion of revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods\n\nMicrosoft Cloud revenue and revenue growth\n\nRevenue from Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties\n\nMicrosoft Cloud gross margin percentage\n\nGross margin percentage for our Microsoft Cloud business\n\nProductivity and Business Processes and Intelligent Cloud\n\nMetrics related to our Productivity and Business Processes and Intelligent Cloud segments assess the health of our core businesses within these segments. The metrics reflect our cloud and on-premises product strategies and trends.\n\nOffice Commercial products and cloud services revenue growth\n\nRevenue from Office Commercial products and cloud services (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Copilot for Microsoft 365\n\nOffice Consumer products and cloud services revenue growth\n\nRevenue from Office Consumer products and cloud services, including Microsoft 365 Consumer and Copilot Pro subscriptions, Office licensed on-premises, and other Office services\n\nOffice 365 Commercial seat growth\n\nThe number of Office 365 Commercial seats at end of period where seats are paid users covered by an Office 365 Commercial subscription\n\nMicrosoft 365 Consumer subscribers\n\nThe number of Microsoft 365 Consumer and Copilot Pro subscribers at end of period\n\nDynamics products and cloud services revenue growth\n\nRevenue from 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\n\nLinkedIn revenue growth\n\nRevenue from LinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions\n\nServer products and cloud services revenue growth\n\nRevenue 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\n\nMore Personal Computing\n\nMetrics related to our More Personal Computing segment assess the performance of key lines of business within this segment. 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.\n\nWindows OEM revenue growth\n\nRevenue from sales of Windows Pro and non-Pro licenses sold through the OEM channel\n\nWindows Commercial products and cloud \n\nservices revenue growth\n\nRevenue from Windows Commercial products and cloud services, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings\n\nDevices revenue growth\n\nRevenue from Devices, including Surface, HoloLens, and PC accessories\n\nXbox content and services revenue growth\n\nRevenue from Xbox content and services, comprising first-party content (such as Activision Blizzard) and third-party content, including games and in-game content; Xbox Game Pass and other subscriptions; Xbox Cloud Gaming; advertising; third-party disc royalties; and other cloud services\n\nSearch and news advertising revenue (ex TAC) \n\ngrowth\n\nRevenue from search and news advertising excluding traffic acquisition costs (“TAC”) paid to Bing Ads network publishers and news partners\n\nSUMMARY RESULTS OF OPERATIONS\n\n(In millions, except percentages and per share amounts)\n2024\n2023\nPercentage\n\nChange\n\nRevenue\n$ 245,122\n$ 211,915\n16%\n\nGross margin\n171,008\n146,052\n17%\n\nOperating income\n109,433\n88,523\n24%\n\nNet income\n88,136\n72,361\n22%\n\nDiluted earnings per share\n11.80\n9.68\n22%\n\nAdjusted gross margin (non-GAAP)\n171,008\n146,204\n17%\n\nAdjusted operating income (non-GAAP)\n109,433\n89,694\n22%\n\nAdjusted net income (non-GAAP)\n88,136\n73,307\n20%\n\nAdjusted diluted earnings per share (non-GAAP)\n11.80\n9.81\n20%\n\nAdjusted 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.\n\nFiscal Year 2024 Compared with Fiscal Year 2023\n\nRevenue increased $33.2 billion or 16% driven by growth across each of our segments. Intelligent Cloud revenue increased driven by Azure. Productivity and Business Processes revenue increased driven by Office 365 Commercial. More Personal Computing revenue increased driven by Gaming.\n\nCost of revenue increased $8.3 billion or 13% driven by growth in Microsoft Cloud and Gaming, offset in part by a decline in Devices.\n\nGross margin increased $25.0 billion or 17% driven by growth across each of our segments.\n\nGross margin percentage increased slightly. 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.\n\nMicrosoft Cloud gross margin percentage decreased slightly to 71%. Excluding the impact of the change in accounting estimate, Microsoft Cloud gross margin percentage increased slightly driven by improvements in Azure and Office 365 Commercial, inclusive of scaling our AI infrastructure, offset in part by sales mix shift to Azure.\n\nOperating expenses increased $4.0 billion or 7% driven by Gaming, with 7 points of growth from the Activision Blizzard acquisition, and investments in cloud engineering, offset in part by the prior year Q2 charge.\n\nOperating income increased $20.9 billion or 24% driven by growth across each of our segments.\n\nPrior 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 $0.13, respectively.\n\nSEGMENT RESULTS OF OPERATIONS\n\n(In millions, except percentages)\n2024\n\n2023\nPercentage\n\nChange\n\nRevenue\n\nProductivity and Business Processes\n$ 77,728\n\n$ 69,274\n12%\n\nIntelligent Cloud\n105,362\n\n87,907\n20%\n\nMore Personal Computing\n62,032\n\n54,734\n13%\n\nTotal\n$ 245,122\n\n$ 211,915\n16%\n\nOperating Income\n\nProductivity and Business Processes\n$ 40,540\n\n$ 34,189\n19%\n\nIntelligent Cloud\n49,584\n\n37,884\n31%\n\nMore Personal Computing\n19,309\n\n16,450\n17%\n\nTotal\n$ 109,433\n\n$ 88,523\n24%\n\nReportable Segments\n\nFiscal Year 2024 Compared with Fiscal Year 2023\n\nProductivity and Business Processes\n\nRevenue increased $8.5 billion or 12%.\n\nOffice Commercial products and cloud services revenue increased $5.8 billion or 14%. Office 365 Commercial revenue grew 16% with seat growth of 7%, driven by small and medium business and frontline worker offerings, as well as growth in revenue per user. Office Commercial products revenue declined 16% driven by continued customer shift to cloud offerings.\n\nOffice Consumer products and cloud services revenue increased $237 million or 4%. Microsoft 365 Consumer subscribers grew 10% to 82.5 million.\n\nLinkedIn revenue increased $1.4 billion or 9% driven by growth across all lines of business – Talent Solutions, Premium Subscriptions, Marketing Solutions, and Sales Solutions.\n\nDynamics products and cloud services revenue increased $1.0 billion or 19% driven by Dynamics 365. Dynamics 365 revenue grew 24% driven by growth across all workloads.\n\nOperating income increased $6.4 billion or 19%.\n\nGross margin increased $6.5 billion or 12% driven by growth in Office 365 Commercial. 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.\n\nOperating expenses increased $159 million or 1%.\n\nIntelligent Cloud\n\nRevenue increased $17.5 billion or 20%.\n\nServer products and cloud services revenue increased $17.8 billion or 22% driven by Azure and other cloud services. Azure and other cloud services revenue grew 30% driven by growth in our consumption-based services. Server products revenue increased 3% driven by continued demand for our hybrid solutions, including Windows Server and SQL Server running in multi-cloud environments.\n\nEnterprise and partner services revenue decreased $306 million or 4% driven by declines in Enterprise Support Services and Industry Solutions.\n\nOperating income increased $11.7 billion or 31%.\n\nGross margin increased $11.6 billion or 19% driven by growth in Azure. Gross margin percentage decreased slightly. Excluding the impact of the change in accounting estimate, gross margin percentage increased slightly primarily driven by improvement in Azure, inclusive of scaling our AI infrastructure, offset in part by sales mix shift to Azure.\n\nOperating expenses decreased slightly primarily driven by the prior year Q2 charge, offset in part by investments in Azure.\n\nMore Personal Computing\n\nRevenue increased $7.3 billion or 13%.\n\nWindows revenue increased $1.7 billion or 8% driven by growth in Windows Commercial and Windows OEM. Windows Commercial products and cloud services revenue increased 11% driven by demand for Microsoft 365. Windows OEM revenue increased 7%.\n\nGaming revenue increased $6.0 billion or 39% driven by growth in Xbox content and services. Xbox content and services revenue increased 50% driven by 44 points of net impact from the Activision Blizzard acquisition. Xbox hardware revenue decreased 13% driven by lower volume of consoles sold.\n\nSearch and news advertising revenue increased $418 million or 3%. Search and news advertising revenue excluding traffic acquisition costs increased 12% driven by higher search volume.\n\nDevices revenue decreased $815 million or 15%.\n\nOperating income increased $2.9 billion or 17%.\n\nGross margin increased $6.8 billion or 23% driven by growth in Gaming, with 10 points of net impact from the Activision Blizzard acquisition, as well as growth in Windows. Gross margin percentage increased driven by sales mix shift to higher margin businesses and improvement in Devices.\n\nOperating expenses increased $3.9 billion or 31% driven by Gaming, with 34 points of growth from the Activision Blizzard acquisition.\n\nOPERATING EXPENSES\n\nResearch and Development\n\n(In millions, except percentages)\n2024\n2023\nPercentage\n\nChange\n\nResearch and development\n$ 29,510\n$ 27,195\n9%\n\nAs a percent of revenue\n12%\n13%\n(1)ppt\n\nResearch and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs and the amortization of purchased software code and services content.\n\nFiscal Year 2024 Compared with Fiscal Year 2023\n\nResearch and development expenses increased $2.3 billion or 9% driven by Gaming, with 7 points of growth from the Activision Blizzard acquisition, and investments in cloud engineering.\n\nSales and Marketing\n\n(In millions, except percentages)\n2024\n2023\nPercentage\n\nChange\n\nSales and marketing\n$ 24,456\n$ 22,759\n7%\n\nAs a percent of revenue\n10%\n11%\n(1)ppt\n\nSales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs.\n\nFiscal Year 2024 Compared with Fiscal Year 2023\n\nSales and marketing expenses increased $1.7 billion or 7% driven by Gaming, with 6 points of growth from the Activision Blizzard acquisition.\n\nGeneral and Administrative\n\n(In millions, except percentages)\n2024\n2023\nPercentage\n\nChange\n\nGeneral and administrative\n$ 7,609\n$ 7,575\n0%\n\nAs a percent of revenue\n3%\n4%\n(1)ppt\n\nGeneral and administrative expenses include payroll, employee benefits, stock-based compensation expense, employee severance expense incurred as part of a corporate program, and other headcount-related expenses associated with finance, legal, facilities, certain human resources and other administrative personnel, certain taxes, and legal and other administrative fees.\n\nFiscal Year 2024 Compared with Fiscal Year 2023\n\nGeneral and administrative expenses increased slightly as growth from the Activision Blizzard acquisition was offset in part by the prior year Q2 charge.\n\nOTHER INCOME (EXPENSE), NET\n\nThe components of other income (expense), net were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\nInterest and dividends income\n$ 3,157\n\n$ 2,994\n\nInterest expense\n(2,935)\n\n(1,968)\n\nNet recognized gains (losses) on investments\n(118)\n\n260\n\nNet losses on derivatives\n(187)\n\n(456)\n\nNet gains (losses) on foreign currency remeasurements\n(244)\n\n181\n\nOther, net\n(1,319)\n\n(223)\n\nTotal\n$ (1,646)\n\n$ 788\n\nWe use derivative instruments to manage risks related to foreign currencies, interest rates, equity prices, and credit; to enhance investment returns; and to facilitate portfolio diversification. Gains and losses from changes in fair values of derivatives that are not designated as hedging instruments are primarily recognized in other income (expense), net.\n\nFiscal Year 2024 Compared with Fiscal Year 2023\n\nInterest and dividends income increased due to higher yields. Interest expense increased due to the issuance of commercial paper. Net recognized losses on investments increased primarily due to higher equity impairments and lower gains on equity investments. Net losses on derivatives decreased primarily due to lower losses on equity derivatives. Other, net primarily reflects net recognized losses on equity method investments.\n\nINCOME TAXES\n\nEffective Tax Rate\n\nOur effective tax rate for fiscal years 2024 and 2023 was 18% and 19%, respectively. The decrease in our effective tax rate was primarily due to tax benefits from tax law changes, including the impact from the issuance of Notice 2023-55 and Notice 2023-80 by the Internal Revenue Service (“IRS”) and U.S. Treasury Department. Notice 2023-55, issued in the first quarter of fiscal year 2024, delayed the effective date of final foreign tax credit regulations to fiscal year 2024 for Microsoft. Notice 2023-80, issued in the second quarter of fiscal year 2024, further delayed the effective date of final foreign tax credit regulations indefinitely.\n\nOur effective tax rate was lower than the U.S. federal statutory rate, primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland.\n\nThe mix of income before income taxes between the U.S. and foreign countries impacted our effective tax rate as a result of the geographic distribution of, and customer demand for, our products and services. In fiscal year 2024, our U.S. income before income taxes was $62.9 billion and our foreign income before income taxes was $44.9 billion. In fiscal year 2023, our U.S. income before income taxes was $52.9 billion and our foreign income before income taxes was $36.4 billion.\n\nThe Organisation for Economic Co-operation and Development (“OECD”) published its model rules “Tax Challenges Arising From the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two)” which established a global minimum corporate tax rate of 15% for certain multinational enterprises. Many countries have implemented or are in the process of implementing the Pillar Two legislation, which will apply to Microsoft beginning in fiscal year 2025. While we do not currently estimate a material impact to our consolidated financial statements, we continue to monitor the impact as countries implement legislation and the OECD provides additional guidance.\n\nUncertain Tax Positions\n\nWe remain under audit by the IRS for tax years 2014 to 2017. With respect to the audit for tax years 2004 to 2013, on September 26, 2023, we received Notices of Proposed Adjustment (“NOPAs”) from the IRS. The primary issues in the NOPAs relate to intercompany transfer pricing. In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest. As of June 30, 2024, we believe our allowances for income tax contingencies are adequate. We disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals office and, if necessary, judicial proceedings. We do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our income tax contingencies for these issues within the next 12 months.\n\nWe are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years 1996 to 2023, some of which are currently under audit by local tax authorities. The resolution of each of these audits is not expected to be material to our consolidated financial statements.\n\nNON-GAAP FINANCIAL MEASURES\n\nAdjusted gross margin, operating income, net income, and diluted EPS are non-GAAP financial measures. Prior year non-GAAP financial measures exclude the impact of the Q2 charge, which includes employee severance expenses, impairment charges resulting from changes to our hardware portfolio, and costs related to lease consolidation activities. We believe these non-GAAP measures aid investors by providing additional insight into our operational performance and help clarify trends affecting our business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. These non-GAAP financial measures presented should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.\n\nThe following table reconciles our financial results reported in accordance with GAAP to non-GAAP financial results:\n\n(In millions, except percentages and per share amounts)\n2024\n\n2023\nPercentage\n\nChange\n\nGross margin\n$ 171,008\n\n$ 146,052\n17%\n\nSeverance, hardware-related impairment, and lease consolidation costs\n0\n\n152\n*\n\nAdjusted gross margin (non-GAAP)\n$ 171,008\n\n$ 146,204\n17%\n\nOperating income\n$ 109,433\n\n$ 88,523\n24%\n\nSeverance, hardware-related impairment, and lease consolidation costs\n0\n\n1,171\n*\n\nAdjusted operating income (non-GAAP)\n$ 109,433\n\n$ 89,694\n22%\n\nNet income\n$ 88,136\n\n$ 72,361\n22%\n\nSeverance, hardware-related impairment, and lease consolidation costs\n0\n\n946\n*\n\nAdjusted net income (non-GAAP)\n$ 88,136\n\n$ 73,307\n20%\n\nDiluted earnings per share\n$ 11.80\n\n$ 9.68\n22%\n\nSeverance, hardware-related impairment, and lease consolidation costs\n0\n\n0.13\n*\n\nAdjusted diluted earnings per share (non-GAAP)\n$ 11.80\n\n$ 9.81\n20%\n\nNot meaningful.\n\nLIQUIDITY AND CAPITAL RESOURCES\n\nWe 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.\n\nCash, Cash Equivalents, and Investments\n\nCash, 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.\n\nValuation\n\nIn 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.\n\nA 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. In addition, all our broker-priced investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriate for these investments. Our fair value processes include controls that are designed to ensure appropriate fair values are recorded. These controls include model validation, review of key model inputs, analysis of period-over-period fluctuations, and independent recalculation of prices where appropriate.\n\nCash Flows\n\nCash from operations increased $31.0 billion to $118.5 billion for fiscal year 2024, primarily due to an increase in cash received from customers. Cash used in financing decreased $6.2 billion to $37.8 billion for fiscal year 2024, primarily due to a $5.0 billion decrease in common stock repurchases and a $3.3 billion increase in proceeds from issuance of debt, net of repayments, offset in part by a $2.0 billion increase in dividends paid. Cash used in investing increased $74.3 billion to $97.0 billion for fiscal year 2024, primarily due to a $67.5 billion increase in cash used for acquisitions of companies, net of cash acquired, and purchases of intangible and other assets and a $16.4 billion increase in additions to property and equipment.\n\nDebt Proceeds\n\nWe issue debt to take advantage of favorable pricing and liquidity in the debt markets, reflecting our credit rating. The proceeds of these issuances were or will be used for general corporate purposes, which may include, among other things, funding for working capital, capital expenditures, repurchases of capital stock, acquisitions, and repayment of existing debt. Refer to Note 11 – Debt of the Notes to Financial Statements for further discussion.\n\nUnearned Revenue\n\nUnearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include Software Assurance (“SA”) and cloud services. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service. Refer to Note 1 – Accounting Policies of the Notes to Financial Statements for further discussion.\n\nThe following table outlines the expected future recognition of unearned revenue as of June 30, 2024:\n\n(In millions)\n\nThree Months Ending\n\nSeptember 30, 2024\n$ 22,529\n\nDecember 31, 2024\n17,664\n\nMarch 31, 2025\n12,076\n\nJune 30, 2025\n5,313\n\nThereafter\n2,602\n\nTotal\n$60,184\n\nIf our customers choose to license cloud-based versions of our products and services rather than licensing transaction-based products and services, the associated revenue will shift from being recognized at the time of the transaction to being recognized over the subscription period or upon consumption, as applicable. Refer to Note 13 – Unearned Revenue of the Notes to Financial Statements for further discussion.\n\nMaterial Cash Requirements and Other Obligations\n\nContractual Obligations\n\nThe following table summarizes the payments due by fiscal year for our outstanding contractual obligations as of June 30, 2024:\n\n(In millions)\n2025\n\nThereafter\n\nTotal\n\nLong-term debt: (a)\n\nPrincipal payments\n$ 2,250\n\n$ 48,971\n\n$ 51,221\n\nInterest payments\n1,618\n\n27,041\n\n28,659\n\nConstruction commitments (b)\n29,892\n\n5,499\n\n35,391\n\nOperating and finance leases, including imputed interest (c)\n12,250\n\n160,475\n\n172,725\n\nPurchase commitments (d)\n68,280\n\n3,742\n\n72,022\n\nTotal\n$ 114,290\n\n$ 245,728\n\n$ 360,018\n\nRefer to Note 11 – Debt of the Notes to Financial Statements.\n\nRefer to Note 7 – Property and Equipment of the Notes to Financial Statements.\n\nRefer to Note 14 – Leases of the Notes to Financial Statements.\n\nPurchase commitments primarily relate to datacenters and include open purchase orders and take-or-pay contracts that are not presented as construction commitments above.\n\nIncome Taxes\n\nAs a result of the TCJA, we are required to pay a one-time transition tax on deferred foreign income not previously subject to U.S. income tax. Under the TCJA, the transition tax is payable in interest-free installments over eight years, with 8% due in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight. As of June 30, 2024, we had a remaining transition tax liability of $7.6 billion, of which $3.8 billion is short-term and payable in the first quarter of fiscal year 2025.\n\nShare Repurchases\n\nDuring fiscal years 2024 and 2023, we repurchased 32 million shares and 69 million shares of our common stock for $12.0 billion and $18.4 billion, respectively, through our share repurchase program. All repurchases were made using cash resources. As of June 30, 2024, $10.3 billion remained of our $60 billion share repurchase program. Refer to Note 16 – Stockholders’ Equity of the Notes to Financial Statements for further discussion.\n\nDividends\n\nDuring fiscal years 2024 and 2023, our Board of Directors declared dividends totaling $22.3 billion and $20.2 billion, respectively. We intend to continue returning capital to shareholders in the form of dividends, subject to declaration by our Board of Directors. Refer to Note 16 – Stockholders’ Equity of the Notes to Financial Statements for further discussion.\n\nOther Planned Uses of Capital\n\nWe will continue to invest in sales, marketing, product support infrastructure, and existing and advanced areas of technology, as well as acquisitions that align with our business strategy. Additions to property and equipment will continue, including new facilities, datacenters, and computer systems for research and development, sales and marketing, support, and administrative staff. We expect capital expenditures to increase in coming years to support growth in our cloud offerings and our investments in AI infrastructure and training. We have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. We have not engaged in any related party transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of capital resources.\n\nRECENT ACCOUNTING GUIDANCE\n\nRefer to Note 1 – Accounting Policies of the Notes to Financial Statements for further discussion.\n\nCRITICAL ACCOUNTING ESTIMATES\n\nOur consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and could have a material impact on our financial condition or results of operations. We have critical accounting estimates in the areas of revenue recognition, impairment of investment securities, goodwill, research and development costs, legal and other contingencies, income taxes, and business combinations – valuation of intangible assets.\n\nRevenue Recognition\n\nOur contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided.\n\nJudgment is required to determine the standalone selling price (“SSP”) for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.\n\nIn instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.\n\nDue to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, including the exercise pattern of certain benefits across our portfolio of customers.\n\nOur products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our products and services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Changes to our estimated variable consideration were not material for the periods presented.\n\nImpairment of Investment Securities\n\nWe review debt investments quarterly for credit losses and impairment. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. This determination requires significant judgment. In making this judgment, we employ a systematic methodology that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments.\n\nEquity investments without readily determinable fair values are written down to fair value if a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than carrying value. We perform a qualitative assessment on a periodic basis. We are required to estimate the fair value of the investment to determine the amount of the impairment loss. Once an investment is determined to be impaired, an impairment charge is recorded in other income (expense), net.\n\nGoodwill\n\nWe allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.\n\nApplication of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital.\n\nThe estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.\n\nResearch and Development Costs\n\nCosts incurred internally in researching and developing a computer software product are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to production. The amortization of these costs is included in cost of revenue over the estimated life of the products.\n\nLegal and Other Contingencies\n\nThe outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our consolidated financial statements.\n\nIncome Taxes\n\nThe objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accounting literature also provides guidance on derecognition of income tax assets and liabilities, classification of deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our consolidated financial statements.\n\nBusiness Combinations – Valuation of Intangible Assets\n\nAccounting for business combinations requires significant judgments when allocating the purchase price to the estimated fair values of assets acquired and liabilities assumed at the acquisition date. Determination of fair value involves estimates and assumptions which can be complex, most notably with respect to intangible assets. Critical estimates used in the valuation of intangible assets include, but are not limited to, the amount and timing of projected cash flows, useful lives, and discount rates. While management’s estimates of fair value are based on assumptions that are believed to be reasonable, these assumptions are inherently uncertain as they pertain to forward-looking views of our business and market conditions. The judgments made in this valuation process could materially impact our consolidated financial statements.\n\nSTATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS\n\nManagement is responsible for the preparation of the consolidated financial statements and related information that are presented in this report. The consolidated financial statements, which include amounts based on management’s estimates and judgments, have been prepared in conformity with accounting principles generally accepted in the United States of America.\n\nThe Company designs and maintains accounting and internal control systems to provide reasonable assurance at reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing consolidated financial statements and maintaining accountability for assets. These systems are augmented by written policies, an organizational structure providing division of responsibilities, careful selection and training of qualified personnel, and a program of internal audits.\n\nThe Company engaged Deloitte & Touche LLP, an independent registered public accounting firm, to audit and render an opinion on the consolidated financial statements and internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).\n\nThe Board of Directors, through its Audit Committee, consisting solely of independent directors of the Company, meets periodically with management, internal auditors, and our independent registered public accounting firm to ensure that each is meeting its responsibilities and to discuss matters concerning internal controls and financial reporting. Deloitte & Touche LLP and the internal auditors each have full and free access to the Audit Committee.\n\nSatya Nadella\n\nChief Executive Officer\n\nAmy E. Hood\n\nExecutive Vice President and Chief Financial Officer\n\nAlice L. Jolla\n\nCorporate Vice President and Chief Accounting Officer\n\nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\nRISKS\n\nWe are exposed to economic risk from foreign exchange rates, interest rates, credit risk, and equity prices. We use derivatives instruments to manage these risks, however, they may still impact our consolidated financial statements.\n\nForeign Currencies\n\nCertain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency positions, including hedges. Principal currency exposures include the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar.\n\nInterest Rate\n\nSecurities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We manage the average maturity of the fixed-income portfolio to achieve economic returns that correlate to certain global fixed-income indices.\n\nCredit\n\nOur fixed-income portfolio is diversified and consists primarily of investment-grade securities. We manage credit exposures relative to broad-based indices to facilitate portfolio diversification.\n\nEquity\n\nSecurities held in our equity investments portfolio are subject to price risk.\n\nSENSITIVITY ANALYSIS\n\nThe following table sets forth the potential loss in future earnings or fair values, including associated derivatives, resulting from hypothetical changes in relevant market rates or prices:\n\n(In millions)\n\nRisk Categories\n      \nHypothetical Change\nJune 30,\n\n2024\n\nImpact\n\nForeign currency – Revenue\n\n10% decrease in foreign exchange rates\n$ (9,605)\n\nEarnings\n\nForeign currency – Investments\n\n10% decrease in foreign exchange rates\n(38)\n\nFair Value\n\nInterest rate\n\n100 basis point increase in U.S. treasury interest rates\n(1,343)\n\nFair Value\n\nCredit\n\n100 basis point increase in credit spreads\n(318)\n\nFair Value\n\nEquity\n\n10% decrease in equity market prices\n(1,078)\n\nEarnings\n\nFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA\n\nINCOME STATEMENTS\n\n(In millions, except per share amounts)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nRevenue:\n\nProduct\n$ 64,773\n\n$ 64,699\n\n$ 72,732\n\nService and other\n180,349\n\n147,216\n\n125,538\n\nTotal revenue\n245,122\n\n211,915\n\n198,270\n\nCost of revenue:\n\nProduct\n15,272\n\n17,804\n\n19,064\n\nService and other\n58,842\n\n48,059\n\n43,586\n\nTotal cost of revenue\n74,114\n\n65,863\n\n62,650\n\nGross margin\n171,008\n\n146,052\n\n135,620\n\nResearch and development\n29,510\n\n27,195\n\n24,512\n\nSales and marketing\n24,456\n\n22,759\n\n21,825\n\nGeneral and administrative\n7,609\n\n7,575\n\n5,900\n\nOperating income\n109,433\n\n88,523\n\n83,383\n\nOther income (expense), net\n(1,646)\n\n788\n\n333\n\nIncome before income taxes\n107,787\n\n89,311\n\n83,716\n\nProvision for income taxes\n19,651\n\n16,950\n\n10,978\n\nNet income\n$ 88,136\n\n$ 72,361\n\n$ 72,738\n\nEarnings per share:\n\nBasic\n$ 11.86\n\n$ 9.72\n\n$ 9.70\n\nDiluted\n$ 11.80\n\n$ 9.68\n\n$ 9.65\n\nWeighted average shares outstanding:\n\nBasic\n7,431\n\n7,446\n\n7,496\n\nDiluted\n7,469\n\n7,472\n\n7,540\n\nRefer to accompanying notes.\n\nCOMPREHENSIVE INCOME STATEMENTS\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nNet income\n$ 88,136\n\n$ 72,361\n\n$ 72,738\n\nOther comprehensive income (loss), net of tax:\n\nNet change related to derivatives\n24\n\n(14)\n\n6\n\nNet change related to investments\n957\n\n(1,444)\n\n(5,360)\n\nTranslation adjustments and other\n(228)\n\n(207)\n\n(1,146)\n\nOther comprehensive income (loss)\n753\n\n(1,665)\n\n(6,500)\n\nComprehensive income\n$ 88,889\n\n$ 70,696\n\n$ 66,238\n\nRefer to accompanying notes.\n\nBALANCE SHEETS\n\n(In millions)\n\nJune 30,\n2024\n\n2023\n\nAssets\n\nCurrent assets:\n\nCash and cash equivalents\n$ 18,315\n\n$ 34,704\n\nShort-term investments\n57,228\n\n76,558\n\nTotal cash, cash equivalents, and short-term investments\n75,543\n\n111,262\n\nAccounts receivable, net of allowance for doubtful accounts of $830 and $650\n56,924\n\n48,688\n\nInventories\n1,246\n\n2,500\n\nOther current assets\n26,021\n\n21,807\n\nTotal current assets\n159,734\n\n184,257\n\nProperty and equipment, net of accumulated depreciation of $76,421 and $68,251\n135,591\n\n95,641\n\nOperating lease right-of-use assets\n18,961\n\n14,346\n\nEquity and other investments\n14,600\n\n9,879\n\nGoodwill\n119,220\n\n67,886\n\nIntangible assets, net\n27,597\n\n9,366\n\nOther long-term assets\n36,460\n\n30,601\n\nTotal assets\n$ 512,163\n\n$ 411,976\n\nLiabilities and stockholders’ equity\n\nCurrent liabilities:\n\nAccounts payable\n$ 21,996\n\n$ 18,095\n\nShort-term debt\n6,693\n\n0\n\nCurrent portion of long-term debt\n2,249\n\n5,247\n\nAccrued compensation\n12,564\n\n11,009\n\nShort-term income taxes\n5,017\n\n4,152\n\nShort-term unearned revenue\n57,582\n\n50,901\n\nOther current liabilities\n19,185\n\n14,745\n\nTotal current liabilities\n125,286\n\n104,149\n\nLong-term debt\n42,688\n\n41,990\n\nLong-term income taxes\n27,931\n\n25,560\n\nLong-term unearned revenue\n2,602\n\n2,912\n\nDeferred income taxes\n2,618\n\n433\n\nOperating lease liabilities\n15,497\n\n12,728\n\nOther long-term liabilities\n27,064\n\n17,981\n\nTotal liabilities\n243,686\n\n205,753\n\nCommitments and contingencies\n\nStockholders’ equity:\n\nCommon stock and paid-in capital – shares authorized 24,000; outstanding 7,434 and 7,432\n100,923\n\n93,718\n\nRetained earnings\n173,144\n\n118,848\n\nAccumulated other comprehensive loss\n(5,590)\n\n(6,343)\n\nTotal stockholders’ equity\n268,477\n\n206,223\n\nTotal liabilities and stockholders’ equity\n$ 512,163\n\n$ 411,976\n\nRefer to accompanying notes.\n\nCASH FLOWS STATEMENTS\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nOperations\n\nNet income\n$ 88,136\n\n$ 72,361\n\n$ 72,738\n\nAdjustments to reconcile net income to net cash from operations:\n\nDepreciation, amortization, and other\n22,287\n\n13,861\n\n14,460\n\nStock-based compensation expense\n10,734\n\n9,611\n\n7,502\n\nNet recognized losses (gains) on investments and derivatives\n305\n\n196\n\n(409)\n\nDeferred income taxes\n(4,738)\n\n(6,059)\n\n(5,702)\n\nChanges in operating assets and liabilities:\n\nAccounts receivable\n(7,191)\n\n(4,087)\n\n(6,834)\n\nInventories\n1,284\n\n1,242\n\n(1,123)\n\nOther current assets\n(1,648)\n\n(1,991)\n\n(709)\n\nOther long-term assets\n(6,817)\n\n(2,833)\n\n(2,805)\n\nAccounts payable\n3,545\n\n(2,721)\n\n2,943\n\nUnearned revenue\n5,348\n\n5,535\n\n5,109\n\nIncome taxes\n1,687\n\n(358)\n\n696\n\nOther current liabilities\n4,867\n\n2,272\n\n2,344\n\nOther long-term liabilities\n749\n\n553\n\n825\n\nNet cash from operations\n118,548\n\n87,582\n\n89,035\n\nFinancing\n\nProceeds from issuance of debt, maturities of 90 days or less, net\n5,250\n\n0\n\n0\n\nProceeds from issuance of debt\n24,395\n\n0\n\n0\n\nRepayments of debt\n(29,070)\n\n(2,750)\n\n(9,023)\n\nCommon stock issued\n2,002\n\n1,866\n\n1,841\n\nCommon stock repurchased\n(17,254)\n\n(22,245)\n\n(32,696)\n\nCommon stock cash dividends paid\n(21,771)\n\n(19,800)\n\n(18,135)\n\nOther, net\n(1,309)\n\n(1,006)\n\n(863)\n\nNet cash used in financing\n(37,757)\n\n(43,935)\n\n(58,876)\n\nInvesting\n\nAdditions to property and equipment\n(44,477)\n\n(28,107)\n\n(23,886)\n\nAcquisition of companies, net of cash acquired, and purchases of intangible and other assets\n(69,132)\n\n(1,670)\n\n(22,038)\n\nPurchases of investments\n(17,732)\n\n(37,651)\n\n(26,456)\n\nMaturities of investments\n24,775\n\n33,510\n\n16,451\n\nSales of investments\n10,894\n\n14,354\n\n28,443\n\nOther, net\n(1,298)\n\n(3,116)\n\n(2,825)\n\nNet cash used in investing\n(96,970)\n\n(22,680)\n\n(30,311)\n\nEffect of foreign exchange rates on cash and cash equivalents\n(210)\n\n(194)\n\n(141)\n\nNet change in cash and cash equivalents\n(16,389)\n\n20,773\n\n(293)\n\nCash and cash equivalents, beginning of period\n34,704\n\n13,931\n\n14,224\n\nCash and cash equivalents, end of period\n$ 18,315\n\n$ 34,704\n\n$ 13,931\n\nRefer to accompanying notes.\n\nSTOCKHOLDERS’ EQUITY STATEMENTS\n\n(In millions, except per share amounts)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nCommon stock and paid-in capital\n\nBalance, beginning of period\n$ 93,718\n\n$ 86,939\n\n$ 83,111\n\nCommon stock issued\n2,002\n\n1,866\n\n1,841\n\nCommon stock repurchased\n(5,712)\n\n(4,696)\n\n(5,688)\n\nStock-based compensation expense\n10,734\n\n9,611\n\n7,502\n\nOther, net\n181\n\n(2)\n\n173\n\nBalance, end of period\n100,923\n\n93,718\n\n86,939\n\nRetained earnings\n\nBalance, beginning of period\n118,848\n\n84,281\n\n57,055\n\nNet income\n88,136\n\n72,361\n\n72,738\n\nCommon stock cash dividends\n(22,293)\n\n(20,226)\n\n(18,552)\n\nCommon stock repurchased\n(11,547)\n\n(17,568)\n\n(26,960)\n\nBalance, end of period\n173,144\n\n118,848\n\n84,281\n\nAccumulated other comprehensive loss\n\nBalance, beginning of period\n(6,343)\n\n(4,678)\n\n1,822\n\nOther comprehensive income (loss)\n753\n\n(1,665)\n\n(6,500)\n\nBalance, end of period\n(5,590)\n\n(6,343)\n\n(4,678)\n\nTotal stockholders’ equity\n$ 268,477\n\n$ 206,223\n\n$ 166,542\n\nCash dividends declared per common share\n$ 3.00\n\n$ 2.72\n\n$ 2.48\n\nRefer to accompanying notes.\n\nNOTES\nNOTES TO FINANCIAL STATEMENTS\n\nNOTE 1 — ACCOUNTING POLICIES\n\nAccounting Principles\n\nOur consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).\n\nWe have recast certain prior period amounts to conform to the current period presentation. The recast of these prior period amounts had no impact on our consolidated balance sheets, consolidated income statements, or consolidated cash flows statements.\n\nPrinciples of Consolidation\n\nThe consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated.\n\nEstimates and Assumptions\n\nPreparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price (“SSP”) of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; product warranties; the fair value of and/or potential impairment of goodwill and intangible assets for our reporting units; product life cycles; useful lives of our tangible and intangible assets; allowances for doubtful accounts; the market value of, and demand for, our inventory; stock-based compensation forfeiture rates; when technological feasibility is achieved for our products; the potential outcome of uncertain tax positions that have been recognized in our consolidated financial statements or tax returns; and determining the timing and amount of impairments for investments. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties.\n\nIn 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.\n\nForeign Currencies\n\nAssets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income.\n\nRevenue\n\nProduct Revenue and Service and Other Revenue\n\nProduct revenue includes sales from operating systems, cross-device productivity and collaboration applications, server applications, business solution applications, desktop and server management tools, software development tools, video games, and hardware such as PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.\n\nService and other revenue includes sales from cloud-based solutions that provide customers with software, services, platforms, and content such as Office 365, Azure, Dynamics 365, and gaming; solution support; and consulting services. Service and other revenue also includes sales from online advertising and LinkedIn.\n\nRevenue Recognition\n\nRevenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.\n\nNature of Products and Services\n\nLicenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. In cases where we allocate revenue to software updates, primarily because the updates are provided at no additional charge, revenue is recognized as the updates are provided, which is generally ratably over the estimated life of the related device or license.\n\nCertain volume licensing programs, including Enterprise Agreements, include on-premises licenses combined with Software Assurance (“SA”). SA conveys rights to new software and upgrades released over the contract period and provides support, tools, and training to help customers deploy and use products more efficiently. On-premises licenses are considered distinct performance obligations when sold with SA. Revenue allocated to SA is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits, given that SA comprises distinct performance obligations that are satisfied over time.\n\nCloud services, which allow customers to use hosted software over the contract period without taking possession of the software, are provided on either a subscription or consumption basis. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract period. Revenue related to cloud services provided on a consumption basis, such as the amount of storage used in a period, is recognized based on the customer utilization of such resources. When cloud services require a significant level of integration and interdependency with software and the individual components are not considered distinct, all revenue is recognized over the period in which the cloud services are provided.\n\nRevenue from search advertising is recognized when the advertisement appears in the search results or when the action necessary to earn the revenue has been completed. Revenue from consulting services is recognized as services are provided.\n\nOur hardware is generally highly dependent on, and interrelated with, the underlying operating system and cannot function without the operating system. In these cases, the hardware and software license are accounted for as a single performance obligation and revenue is recognized at the point in time when ownership is transferred to resellers or directly to end customers through retail stores and online marketplaces.\n\nRefer to Note 19 – Segment Information and Geographic Data for further information, including revenue by significant product and service offering.\n\nSignificant Judgments\n\nOur contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided.\n\nJudgment is required to determine the SSP for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.\n\nIn instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.\n\nDue to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, including the exercise pattern of certain benefits across our portfolio of customers.\n\nOur products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our products and services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Changes to our estimated variable consideration were not material for the periods presented.\n\nContract Balances and Other Receivables\n\nTiming of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record a receivable related to revenue recognized for multi-year on-premises licenses as we have an unconditional right to invoice and receive payment in the future related to those licenses.\n\nUnearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include SA and cloud services. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for consulting services to be performed in the future, LinkedIn subscriptions, Office 365 subscriptions, Xbox subscriptions, Windows post-delivery support, Dynamics business solutions, and other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service.\n\nRefer to Note 13 – Unearned Revenue for further information, including unearned revenue by segment and changes in unearned revenue during the period.\n\nPayment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced annually with revenue recognized upfront.\n\nAs of June 30, 2024 and 2023, long-term accounts receivable, net of allowance for doubtful accounts, was $4.9 billion and $4.5 billion, respectively, and is included in other long-term assets in our consolidated balance sheets.\n\nThe allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.\n\nActivity in the allowance for doubtful accounts was as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nBalance, beginning of period\n$ 716\n\n$ 710\n\n$ 798\n\nCharged to costs and other\n386\n\n258\n\n157\n\nWrite-offs\n(218)\n\n(252)\n\n(245)\n\nBalance, end of period\n$ 884\n\n$ 716\n\n$ 710\n\nAllowance for doubtful accounts included in our consolidated balance sheets:\n\n(In millions)\n\nJune 30,\n2024\n\n2023\n\n2022\n\nAccounts receivable, net of allowance for doubtful accounts\n$ 830\n\n$ 650\n\n$ 633\n\nOther long-term assets\n54\n\n66\n\n77\n\nTotal\n$ 884\n\n$ 716\n\n$ 710\n\nAs of June 30, 2024 and 2023, other receivables related to activities to facilitate the purchase of server components were $10.5 billion and $9.2 billion, respectively, and are included in other current assets in our consolidated balance sheets.\n\nWe record financing receivables when we offer certain customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of June 30, 2024 and 2023, our financing receivables, net were $4.5 billion and $5.3 billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets. We record an allowance to cover expected losses based on troubled accounts, historical experience, and other currently available evidence.\n\nAssets Recognized from Costs to Obtain a Contract with a Customer\n\nWe recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets in our consolidated balance sheets.\n\nWe apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include our internal sales organization compensation program and certain partner sales incentive programs as we have determined annual compensation is commensurate with annual sales activities.\n\nCost of Revenue\n\nCost of revenue includes: manufacturing and distribution costs for products sold and programs licensed; operating costs related to product support service centers and product distribution centers; costs incurred to include software on PCs sold by original equipment manufacturers (“OEM”), to drive traffic to our websites, and to acquire online advertising space; costs incurred to support and maintain cloud-based and other online products and services, including datacenter costs and royalties; warranty costs; inventory valuation adjustments; costs associated with the delivery of consulting services; and the amortization of capitalized software development costs. Capitalized software development costs are amortized over the estimated lives of the products.\n\nProduct Warranty\n\nWe 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.\n\nResearch and Development\n\nResearch and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs and the amortization of purchased software code and services content. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products.\n\nSales and Marketing\n\nSales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs. Advertising costs are expensed as incurred. Advertising expense was $1.7 billion, $904 million, and $1.5 billion in fiscal years 2024, 2023, and 2022, respectively.\n\nStock-Based Compensation\n\nCompensation cost for stock awards, which include restricted stock units (“RSUs”) and performance stock units (“PSUs”), is measured at the fair value on the grant date and recognized as expense, net of estimated forfeitures, over the related service or performance period. The fair value of stock awards is based on the quoted price of our common stock on the grant date less the present value of expected dividends not received during the vesting period. We measure the fair value of PSUs using a Monte Carlo valuation model. Compensation cost for RSUs is recognized using the straight-line method and for PSUs is recognized using the accelerated method.\n\nCompensation expense for the employee stock purchase plan (“ESPP”) is measured as the discount the employee is entitled to upon purchase and is recognized in the period of purchase.\n\nIncome Taxes\n\nIncome tax expense includes U.S. and international income taxes, and interest and penalties on uncertain tax positions. Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. Deferred tax assets are reported net of a valuation allowance when it is more likely than not that a tax benefit will not be realized. All deferred income taxes are classified as long-term in our consolidated balance sheets.\n\nFinancial Instruments\n\nInvestments\n\nWe consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.\n\nDebt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in fair value, excluding credit losses and impairments, are recorded in other comprehensive income. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/ or investee conditions deteriorate, we may incur future impairments.\n\nEquity investments with readily determinable fair values are measured at fair value. Equity investments without readily determinable fair values are measured using the equity method or measured at cost with adjustments for observable changes in price or impairments (referred to as the measurement alternative). We perform a qualitative assessment on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Changes in value are recorded in other income (expense), net.\n\nInvestments that are considered variable interest entities (“VIEs”) are evaluated to determine whether we are the primary beneficiary of the VIE, in which case we would be required to consolidate the entity. We evaluate whether we have (1) the power to direct the activities that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We have determined we are not the primary beneficiary of any of our VIE investments. Therefore, our VIE investments are not consolidated and the majority are accounted for under the equity method of accounting.\n\nDerivatives\n\nDerivative instruments are recognized as either assets or liabilities and measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.\n\nFor derivative instruments designated as fair value hedges, gains and losses are recognized in other income (expense), net with offsetting gains and losses on the hedged items. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.\n\nFor derivative instruments designated as cash flow hedges, gains and losses are initially reported as a component of other comprehensive income and subsequently recognized in other income (expense), net with the corresponding hedged item. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.\n\nFor derivative instruments that are not designated as hedges, gains and losses from changes in fair values are primarily recognized in other income (expense), net.\n\nFair Value Measurements\n\nWe account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:\n\nLevel 1 – inputs are based upon unadjusted quoted prices for identical instruments in active markets. Our Level 1 investments include U.S. government securities, common and preferred stock, and mutual funds. Our Level 1 derivative assets and liabilities include those actively traded on exchanges.\n\nLevel 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit spreads, foreign exchange rates, and forward and spot prices for currencies. Our Level 2 investments include commercial paper, certificates of deposit, U.S. agency securities, foreign government bonds, mortgage- and asset-backed securities, corporate notes and bonds, and municipal securities. Our Level 2 derivative assets and liabilities include certain cleared swap contracts and over-the-counter forward, option, and swap contracts.\n\nLevel 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 assets and liabilities include investments in corporate notes and bonds, municipal securities, and goodwill and intangible assets, when they are recorded at fair value due to an impairment charge. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities.\n\nWe measure equity investments without readily determinable fair values on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections.\n\nOur other current financial assets and current financial liabilities have fair values that approximate their carrying values.\n\nInventories\n\nInventories 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.\n\nProperty and Equipment\n\nProperty and equipment is stated at cost less accumulated depreciation, and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: computer software developed or acquired for internal use, three years; computer equipment, two to six years; buildings and improvements, five to 15 years; leasehold improvements, three to 20 years; and furniture and equipment, one to 10 years. Land is not depreciated.\n\nLeases\n\nWe determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our consolidated balance sheets.\n\nROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.\n\nWe have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.\n\nGoodwill\n\nGoodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.\n\nIntangible Assets\n\nOur intangible assets are subject to amortization and are amortized over the estimated useful life in proportion to the economic benefits received. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.\n\nRelated Party Transactions\n\nIn March 2024, we entered into an agreement with Inflection AI, Inc. (“Inflection”), pursuant to which we obtained a non-exclusive license to Inflection’s intellectual property. Reid Hoffman, a member of our Board of Directors, is a co-founder of and serves on the board of directors of Inflection. As of the date of the agreement with Inflection, Reprogrammed Interchange LLC (“Reprogrammed”) and entities affiliated with Greylock Ventures (“Greylock”) each held less than a 10% equity interest in Inflection. Mr. Hoffman may be deemed to beneficially own the shares held by Reprogrammed and Greylock by virtue of his relationship with such entities. Mr. Hoffman did not participate in any portions of the meetings of our Board of Directors or any committee thereof to review and approve the transaction with Inflection.\n\nRecent Accounting Guidance\n\nSegment Reporting – Improvements to Reportable Segment Disclosures\n\nIn November 2023, the Financial Accounting Standards Board (“FASB”) issued a new standard to improve reportable segment disclosures. The guidance expands the disclosures required for reportable segments in our annual and interim consolidated financial statements, primarily through enhanced disclosures about significant segment expenses. The standard will be effective for us beginning with our annual reporting for fiscal year 2025 and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of this standard on our segment disclosures.\n\nIncome Taxes – Improvements to Income Tax Disclosures\n\nIn December 2023, the FASB issued a new standard to improve income tax disclosures. The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. The standard will be effective for us beginning with our annual reporting for fiscal year 2026, with early adoption permitted. We are currently evaluating the impact of this standard on our income tax disclosures.\n\nNOTE 2 — EARNINGS PER SHARE\n\nBasic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and stock awards.\n\nThe components of basic and diluted EPS were as follows:\n\n(In millions, except earnings per share)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nNet income available for common shareholders (A)\n$ 88,136\n\n$ 72,361\n\n$ 72,738\n\nWeighted average outstanding shares of common stock (B)\n7,431\n\n7,446\n\n7,496\n\nDilutive effect of stock-based awards\n38\n\n26\n\n44\n\nCommon stock and common stock equivalents (C)\n7,469\n\n7,472\n\n7,540\n\nEarnings Per Share\n\nBasic (A/B)\n$ 11.86\n\n$ 9.72\n\n$ 9.70\n\nDiluted (A/C)\n$ 11.80\n\n$ 9.68\n\n$ 9.65\n\nAnti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.\n\nNOTE 3 — OTHER INCOME (EXPENSE), NET\n\nThe components of other income (expense), net were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nInterest and dividends income\n$ 3,157\n\n$ 2,994\n\n$ 2,094\n\nInterest expense\n(2,935)\n\n(1,968)\n\n(2,063)\n\nNet recognized gains (losses) on investments\n(118)\n\n260\n\n461\n\nNet losses on derivatives\n(187)\n\n(456)\n\n(52)\n\nNet gains (losses) on foreign currency remeasurements\n(244)\n\n181\n\n(75)\n\nOther, net\n(1,319)\n\n(223)\n\n(32)\n\nTotal\n$ (1,646)\n\n$ 788\n\n$ 333\n\nOther, net primarily reflects net recognized losses on equity method investments.\n\nNet Recognized Gains (Losses) on Investments\n\nNet recognized gains (losses) on debt investments were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nRealized gains from sales of available-for-sale securities\n$ 22\n\n$ 36\n\n$ 162\n\nRealized losses from sales of available-for-sale securities\n(98)\n\n(124)\n\n(138)\n\nImpairments and allowance for credit losses\n23\n\n(10)\n\n(81)\n\nTotal\n$ (53)\n\n$ (98)\n\n$ (57)\n\nNet recognized gains (losses) on equity investments were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nNet realized gains on investments sold\n$ 18\n\n$ 75\n\n$ 29\n\nNet unrealized gains on investments still held\n146\n\n303\n\n509\n\nImpairments of investments\n(229)\n\n(20)\n\n(20)\n\nTotal\n$ (65)\n\n$ 358\n\n$ 518\n\nNOTE 4 — INVESTMENTS\n\nInvestment Components\n\nThe components of investments were as follows:\n\n(In millions)\nFair Value\n\nLevel\n\nAdjusted\n\nCost Basis\n\nUnrealized\n\nGains\n\nUnrealized\n\nLosses\n\nRecorded\n\nBasis\n\nCash and\n\nCash\n\nEquivalents\n\nShort-term\n\nInvestments\n\nEquity and\n\nOther\n\nInvestments\n\nJune 30, 2024\n\nChanges in Fair Value Recorded in Other Comprehensive Income\n\nCommercial paper\nLevel 2\n\n$ 4,666\n\n$ 0\n\n$ 0\n\n$ 4,666\n\n$ 4,666\n\n$ 0\n\n$ 0\n\nCertificates of deposit\nLevel 2\n\n1,547\n\n0\n\n0\n\n1,547\n\n1,503\n\n44\n\n0\n\nU.S. government securities\nLevel 1\n\n49,603\n\n4\n\n(2,948)\n\n46,659\n\n14\n\n46,645\n\n0\n\nU.S. agency securities\nLevel 2\n\n17\n\n0\n\n0\n\n17\n\n0\n\n17\n\n0\n\nForeign government bonds\nLevel 2\n\n319\n\n3\n\n(16)\n\n306\n\n0\n\n306\n\n0\n\nMortgage- and asset-backed securities\nLevel 2\n\n944\n\n3\n\n(35)\n\n912\n\n0\n\n912\n\n0\n\nCorporate notes and bonds\nLevel 2\n\n9,106\n\n28\n\n(318)\n\n8,816\n\n0\n\n8,816\n\n0\n\nCorporate notes and bonds\nLevel 3\n\n1,641\n\n0\n\n(1)\n\n1,640\n\n0\n\n140\n\n1,500\n\nMunicipal securities\nLevel 2\n\n262\n\n0\n\n(13)\n\n249\n\n0\n\n249\n\n0\n\nMunicipal securities\nLevel 3\n\n104\n\n0\n\n(17)\n\n87\n\n0\n\n87\n\n0\n\nTotal debt investments\n\n$ 68,209\n\n$ 38\n\n$ (3,348)\n\n$ 64,899\n\n$ 6,183\n\n$ 57,216\n\n$ 1,500\n\nChanges in Fair Value Recorded in Net Income\n\nEquity investments\nLevel 1\n\n$ 3,547\n\n$ 561\n\n$ 0\n\n$ 2,986\n\nEquity investments\nOther\n\n10,114\n\n0\n\n0\n\n10,114\n\nTotal equity investments\n\n$ 13,661\n\n$ 561\n\n$ 0\n\n$ 13,100\n\nCash\n\n$ 11,571\n\n$ 11,571\n\n$ 0\n\n$ 0\n\nDerivatives, net (a)\n\n12\n\n0\n\n12\n\n0\n\nTotal\n\n$ 90,143\n\n$ 18,315\n\n$ 57,228\n\n$ 14,600\n\n(In millions)\nFair Value\n\nLevel\n\nAdjusted\n\nCost Basis\n\nUnrealized\n\nGains\n\nUnrealized\n\nLosses\n\nRecorded\n\nBasis\n\nCash and\n\nCash\n\nEquivalents\n\nShort-term\n\nInvestments\n\nEquity and\n\nOther\n\nInvestments\n\nJune 30, 2023\n\nChanges in Fair Value Recorded in Other Comprehensive Income\n\nCommercial paper\nLevel 2\n\n$ 16,589\n\n$ 0\n\n$ 0\n\n$ 16,589\n\n$ 12,231\n\n$ 4,358\n\n$ 0\n\nCertificates of deposit\nLevel 2\n\n2,701\n\n0\n\n0\n\n2,701\n\n2,657\n\n44\n\n0\n\nU.S. government securities\nLevel 1\n\n65,237\n\n2\n\n(3,870)\n\n61,369\n\n2,991\n\n58,378\n\n0\n\nU.S. agency securities\nLevel 2\n\n2,703\n\n0\n\n0\n\n2,703\n\n894\n\n1,809\n\n0\n\nForeign government bonds\nLevel 2\n\n498\n\n1\n\n(24)\n\n475\n\n0\n\n475\n\n0\n\nMortgage- and asset-backed securities\nLevel 2\n\n824\n\n1\n\n(39)\n\n786\n\n0\n\n786\n\n0\n\nCorporate notes and bonds\nLevel 2\n\n10,809\n\n8\n\n(583)\n\n10,234\n\n0\n\n10,234\n\n0\n\nCorporate notes and bonds\nLevel 3\n\n120\n\n0\n\n0\n\n120\n\n0\n\n120\n\n0\n\nMunicipal securities\nLevel 2\n\n285\n\n1\n\n(18)\n\n268\n\n7\n\n261\n\n0\n\nMunicipal securities\nLevel 3\n\n103\n\n0\n\n(16)\n\n87\n\n0\n\n87\n\n0\n\nTotal debt investments\n\n$ 99,869\n\n$ 13\n\n$ (4,550)\n\n$ 95,332\n\n$ 18,780\n\n$ 76,552\n\n$ 0\n\nChanges in Fair Value Recorded in Net Income\n\nEquity investments\nLevel 1\n\n$ 10,138\n\n$ 7,446\n\n$ 0\n\n$ 2,692\n\nEquity investments\nOther\n\n7,187\n\n0\n\n0\n\n7,187\n\nTotal equity investments\n\n$ 17,325\n\n$ 7,446\n\n$ 0\n\n$ 9,879\n\nCash\n\n$ 8,478\n\n$ 8,478\n\n$ 0\n\n$ 0\n\nDerivatives, net (a)\n\n6\n\n0\n\n6\n\n0\n\nTotal\n\n$ 121,141\n\n$ 34,704\n\n$ 76,558\n\n$ 9,879\n\nRefer to Note 5 – Derivatives for further information on the fair value of our derivative instruments.\n\nEquity investments presented as “Other” in the tables above include investments without readily determinable fair values measured using the equity method or measured at cost with adjustments for observable changes in price or impairments, and investments measured at fair value using net asset value as a practical expedient which are not categorized in the fair value hierarchy. As of June 30, 2024 and 2023, equity investments without readily determinable fair values measured at cost with adjustments for observable changes in price or impairments were $3.9 billion and $4.2 billion, respectively.\n\nUnrealized Losses on Debt Investments\n\nDebt investments with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair values were as follows:\n\nLess than 12 Months\n\n12 Months or Greater\n\nTotal\n\nUnrealized\n\nLosses\n\n(In millions)\nFair Value\n\nUnrealized\n\nLosses\n\nFair Value\n\nUnrealized\n\nLosses\n\nTotal\n\nFair Value\n\nJune 30, 2024\n\nU.S. government and agency securities\n$ 529\n\n$ (12)\n\n$ 45,821\n\n$ (2,936)\n\n$ 46,350\n\n$ (2,948)\n\nForeign government bonds\n79\n\n(2)\n\n180\n\n(14)\n\n259\n\n(16)\n\nMortgage- and asset-backed securities\n201\n\n(1)\n\n409\n\n(34)\n\n610\n\n(35)\n\nCorporate notes and bonds\n1,310\n\n(9)\n\n5,779\n\n(310)\n\n7,089\n\n(319)\n\nMunicipal securities\n38\n\n(1)\n\n243\n\n(29)\n\n281\n\n(30)\n\nTotal\n$ 2,157\n\n$ (25)\n\n$ 52,432\n\n$ (3,323)\n\n$ 54,589\n\n$ (3,348)\n\nLess than 12 Months\n\n12 Months or Greater\n\nTotal\n\nUnrealized\n\nLosses\n\n(In millions)\nFair Value\n\nUnrealized\n\nLosses\n\nFair Value\n\nUnrealized\n\nLosses\n\nTotal\n\nFair Value\n\nJune 30, 2023\n\nU.S. government and agency securities\n$ 7,950\n\n$ (336)\n\n$ 45,273\n\n$ (3,534)\n\n$ 53,223\n\n$ (3,870)\n\nForeign government bonds\n77\n\n(5)\n\n391\n\n(19)\n\n468\n\n(24)\n\nMortgage- and asset-backed securities\n257\n\n(5)\n\n412\n\n(34)\n\n669\n\n(39)\n\nCorporate notes and bonds\n2,326\n\n(49)\n\n7,336\n\n(534)\n\n9,662\n\n(583)\n\nMunicipal securities\n111\n\n(3)\n\n186\n\n(31)\n\n297\n\n(34)\n\nTotal\n$ 10,721\n\n$ (398)\n\n$ 53,598\n\n$ (4,152)\n\n$ 64,319\n\n$ (4,550)\n\nUnrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Management does not believe any remaining unrealized losses represent impairments based on our evaluation of available evidence.\n\nDebt Investment Maturities\n\nThe following table outlines maturities of our debt investments as of June 30, 2024:\n\n(In millions)\nAdjusted\n\nCost Basis\n\nEstimated\n\nFair Value\n\nJune 30, 2024\n\nDue in one year or less\n$ 19,815\n\n$ 19,596\n\nDue after one year through five years\n38,954\n\n36,779\n\nDue after five years through 10 years\n8,028\n\n7,242\n\nDue after 10 years\n1,412\n\n1,282\n\nTotal\n$ 68,209\n\n$ 64,899\n\nNOTE 5 — DERIVATIVES\n\nWe use derivative instruments to manage risks related to foreign currencies, interest rates, equity prices, and credit; to enhance investment returns; and to facilitate portfolio diversification. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment.\n\nForeign Currencies\n\nCertain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency hedge positions.\n\nForeign 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. Foreign currency risks related to certain Euro-denominated debt are hedged using foreign exchange forward contracts that are designated as cash flow hedging instruments.\n\nCertain options and forwards not designated as hedging instruments are also used to manage the variability in foreign exchange rates on certain balance sheet amounts and to manage other foreign currency exposures.\n\nInterest Rate\n\nInterest rate risks related to certain fixed-rate debt are hedged using interest rate swaps that are designated as fair value hedging instruments to effectively convert the fixed interest rates to floating interest rates.\n\nSecurities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We manage the average maturity of our fixed-income portfolio to achieve economic returns that correlate to certain broad-based fixed-income indices using option, futures, and swap contracts. These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below.\n\nEquity\n\nSecurities held in our equity investments portfolio are subject to market price risk. At times, we may hold options, futures, and swap contracts. These contracts are not designated as hedging instruments.\n\nCredit\n\nOur fixed-income portfolio is diversified and consists primarily of investment-grade securities. We use credit default swap contracts to manage credit exposures relative to broad-based indices and to facilitate portfolio diversification. These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below.\n\nCredit-Risk-Related Contingent Features\n\nCertain counterparty agreements for derivative instruments contain provisions that require our issued and outstanding long-term unsecured debt to maintain an investment grade credit rating and require us to maintain minimum liquidity of $1.0 billion. To the extent we fail to meet these requirements, we will be required to post collateral, similar to the standard convention related to over-the-counter derivatives. As of June 30, 2024, our long-term unsecured debt rating was AAA, and cash investments were in excess of $1.0 billion. As a result, no collateral was required to be posted.\n\nThe following table presents the notional amounts of our outstanding derivative instruments measured in U.S. dollar equivalents:\n\n(In millions)\nJune 30,\n\n2024\n\nJune 30,\n\n2023\n\nDesignated as Hedging Instruments\n\nForeign exchange contracts purchased\n$ 1,492\n\n$ 1,492\n\nInterest rate contracts purchased\n1,100\n\n1,078\n\nNot Designated as Hedging Instruments\n\nForeign exchange contracts purchased\n7,167\n\n7,874\n\nForeign exchange contracts sold\n31,793\n\n25,159\n\nEquity contracts purchased\n4,016\n\n3,867\n\nEquity contracts sold\n2,165\n\n2,154\n\nOther contracts purchased\n2,113\n\n1,224\n\nOther contracts sold\n811\n\n581\n\nFair Values of Derivative Instruments\n\nThe following table presents our derivative instruments:\n\n(In millions)\nDerivative\n\nAssets\n\nDerivative\n\nLiabilities\n\nDerivative\n\nAssets\n\nDerivative\n\nLiabilities\n\nJune 30,\n\n2024\n\nJune 30,\n\n2023\n\nDesignated as Hedging Instruments\n\nForeign exchange contracts\n$ 24\n\n$ (76)\n\n$ 34\n\n$ (67)\n\nInterest rate contracts\n19\n\n0\n\n16\n\n0\n\nNot Designated as Hedging Instruments\n\nForeign exchange contracts\n213\n\n(230)\n\n249\n\n(332)\n\nEquity contracts\n63\n\n(491)\n\n165\n\n(400)\n\nOther contracts\n12\n\n(3)\n\n5\n\n(6)\n\nGross amounts of derivatives\n331\n\n(800)\n\n469\n\n(805)\n\nGross amounts of derivatives offset in the balance sheet\n(151)\n\n152\n\n(202)\n\n206\n\nCash collateral received\n0\n\n(104)\n\n0\n\n(125)\n\nNet amounts of derivatives\n$ 180\n\n$ (752)\n\n$ 267\n\n$ (724)\n\nReported as\n\nShort-term investments\n$ 12\n\n$ 0\n\n$ 6\n\n$ 0\n\nOther current assets\n149\n\n0\n\n245\n\n0\n\nOther long-term assets\n19\n\n0\n\n16\n\n0\n\nOther current liabilities\n0\n\n(401)\n\n0\n\n(341)\n\nOther long-term liabilities\n0\n\n(351)\n\n0\n\n(383)\n\nTotal\n$ 180\n\n$ (752)\n\n$ 267\n\n$ (724)\n\nGross 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 $804 million, respectively, as of June 30, 2023.\n\nThe following table presents the fair value of our derivatives instruments on a gross basis:\n\n(In millions)\nLevel 1\n\nLevel 2\n\nLevel 3\n\nTotal\n\nJune 30, 2024\n\nDerivative assets\n$ 0\n\n$ 327\n\n$ 4\n\n$ 331\n\nDerivative liabilities\n(1)\n\n(799)\n\n0\n\n(800)\n\nJune 30, 2023\n\nDerivative assets\n0\n\n462\n\n7\n\n469\n\nDerivative liabilities\n0\n\n(805)\n\n0\n\n(805)\n\nGains (losses) on derivative instruments recognized in other income (expense), net were as follows:\n\n(In millions)\n\nYear Ended June 30,\n\n2024\n\n2023\n\n2022\n\nDesignated as Fair Value Hedging Instruments\n\nForeign exchange contracts\n\nDerivatives\n\n$ 0\n\n$ 0\n\n$ 49\n\nHedged items\n\n0\n\n0\n\n(50)\n\nExcluded from effectiveness assessment\n\n0\n\n0\n\n4\n\nInterest rate contracts\n\nDerivatives\n\n(23)\n\n(65)\n\n(92)\n\nHedged items\n\n(25)\n\n38\n\n108\n\nDesignated as Cash Flow Hedging Instruments\n\nForeign exchange contracts\n\nAmount reclassified from accumulated other comprehensive loss\n\n(48)\n\n61\n\n(79)\n\nNot Designated as Hedging Instruments\n\nForeign exchange contracts\n\n367\n\n(73)\n\n383\n\nEquity contracts\n\n(177)\n\n(420)\n\n13\n\nOther contracts\n\n(15)\n\n(41)\n\n(85)\n\nGains (losses), net of tax, on derivative instruments recognized in our consolidated comprehensive income statements were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nDesignated as Cash Flow Hedging Instruments\n\nForeign exchange contracts\n\nIncluded in effectiveness assessment\n$ (14)\n\n$ 34\n\n$ (57)\n\nNOTE 6 — INVENTORIES\n\nThe components of inventories were as follows:\n\n(In millions)\n\nJune 30,\n\n2024\n\n2023\n\nRaw materials\n\n$ 394\n\n$ 709\n\nWork in process\n\n7\n\n23\n\nFinished goods\n\n845\n\n1,768\n\nTotal\n\n$ 1,246\n\n$ 2,500\n\nNOTE 7 — PROPERTY AND EQUIPMENT\n\nThe components of property and equipment were as follows:\n\n(In millions)\n\nJune 30,\n2024\n\n2023\n\nLand\n$ 8,163\n\n$ 5,683\n\nBuildings and improvements\n93,943\n\n68,465\n\nLeasehold improvements\n9,594\n\n8,537\n\nComputer equipment and software\n93,780\n\n74,961\n\nFurniture and equipment\n6,532\n\n6,246\n\nTotal, at cost\n212,012\n\n163,892\n\nAccumulated depreciation\n(76,421)\n\n(68,251)\n\nTotal, net\n$ 135,591\n\n$ 95,641\n\nDuring fiscal years 2024, 2023, and 2022, depreciation expense was $15.2 billion, $11.0 billion, and $12.6 billion, respectively.\n\nAs of June 30, 2024, we have committed $35.4 billion for the construction of new buildings, building improvements, and leasehold improvements, primarily related to datacenters.\n\nNOTE 8 — BUSINESS COMBINATIONS\n\nActivision Blizzard, Inc.\n\nOn October 13, 2023, we completed our acquisition of Activision Blizzard, Inc. (“Activision Blizzard”) for a total purchase price of $75.4 billion, consisting primarily of cash. Activision Blizzard is a leader in game development and an interactive entertainment content publisher. The acquisition will accelerate the growth in our gaming business across mobile, PC, console, and cloud gaming. The financial results of Activision Blizzard have been included in our consolidated financial statements since the date of the acquisition. Activision Blizzard is reported as part of our More Personal Computing segment.\n\nThe purchase price allocation as of the date of acquisition was based on a preliminary valuation and is subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed becomes available. The primary areas that remain preliminary relate to the fair values of goodwill and income taxes.\n\nThe major classes of assets and liabilities to which we have preliminarily allocated the purchase price were as follows:\n\n(In millions)\n\nCash and cash equivalents\n$ 12,976\n\nGoodwill\n50,969\n\nIntangible assets\n21,969\n\nOther assets\n2,501\n\nLong-term debt\n(2,799)\n\nLong-term income taxes\n(1,914)\n\nDeferred income taxes\n(4,677)\n\nOther liabilities\n(3,617)\n\nTotal purchase price\n$ 75,408\n\nGoodwill was assigned to our More Personal Computing segment. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of Activision Blizzard. Substantially all of the goodwill is expected to be non-deductible for income tax purposes.\n\nFollowing are the details of the purchase price allocated to the intangible assets acquired:\n\n(In millions, except average life)\nAmount\n\nWeighted\n\nAverage Life\n\nMarketing-related\n$ 11,619\n\n24 years\n\nTechnology-based\n9,689\n\n4 years\n\nCustomer-related\n661\n\n4 years\n\nFair value of intangible assets acquired\n$ 21,969\n\n15 years\n\nFollowing is the net impact of the Activision Blizzard acquisition on our consolidated income statements since the date of acquisition:\n\n(In millions)\n\nYear Ended June 30,\n\n2024\n\nRevenue\n\n$ 5,729\n\nOperating loss\n\n(1,362)\n\nThe change of Activision Blizzard content from third-party to first-party is reflected in the net impact.\n\nFollowing are the supplemental consolidated financial results of Microsoft Corporation on an unaudited pro forma basis, as if the acquisition had been consummated on July 1, 2022:\n\n(In millions, except per share amounts)\n\nYear Ended June 30,\n\n2024\n\n2023\n\nRevenue\n\n$ 247,442\n\n$ 219,790\n\nNet income\n\n88,308\n\n71,383\n\nDiluted earnings per share\n\n11.82\n\n9.55\n\nThese pro forma results were based on estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had we been a combined company during the periods presented and are not necessarily indicative of our consolidated results of operations in future periods. The pro forma results include adjustments related to purchase accounting, primarily amortization of intangible assets. Acquisition costs and other nonrecurring charges were immaterial and are included in the earliest period presented.\n\nNuance Communications, Inc.\n\nOn March 4, 2022, we completed our acquisition of Nuance Communications, Inc. (“Nuance”) for a total purchase price of $18.8 billion, consisting primarily of cash. Nuance is a cloud and artificial intelligence (“AI”) software provider with healthcare and enterprise AI experience, and the acquisition will build on our industry-specific cloud offerings. The financial results of Nuance have been included in our consolidated financial statements since the date of the acquisition. Nuance is reported as part of our Intelligent Cloud segment.\n\nThe allocation of the purchase price to goodwill was completed as of December 31, 2022. The major classes of assets and liabilities to which we have allocated the purchase price were as follows:\n\n(In millions)\n\nGoodwill (a)\n\n$ 16,326\n\nIntangible assets\n\n4,365\n\nOther assets\n\n42\n\nOther liabilities (b)\n\n(1,972)\n\nTotal\n\n$ 18,761\n\nGoodwill was assigned to our Intelligent Cloud segment and was primarily attributed to increased synergies that are expected to be achieved from the integration of Nuance. None of the goodwill is expected to be deductible for income tax purposes.\n\nIncludes $986 million of convertible senior notes issued by Nuance in 2015 and 2017, substantially all of which have been redeemed.\n\nFollowing are the details of the purchase price allocated to the intangible assets acquired:\n\n(In millions, except average life)\nAmount\n\nWeighted\n\nAverage Life\n\nCustomer-related\n$ 2,610\n\n9 years\n\nTechnology-based\n1,540\n\n5 years\n\nMarketing-related\n215\n\n4 years\n\nTotal\n$ 4,365\n\n7 years\n\nNOTE 9 — GOODWILL\n\nChanges in the carrying amount of goodwill were as follows:\n\n(In millions)\nJune 30,\n\n2022\n\nAcquisitions\n\nOther\n\nJune 30,\n\n2023\n\nAcquisitions\n\nOther\n\nJune 30,\n\n2024\n\nProductivity and Business Processes\n$ 24,811\n\n$ 11\n\n$ (47)\n\n$ 24,775\n\n$ 0\n\n$ 2\n\n$ 24,777\n\nIntelligent Cloud\n30,182\n\n223\n\n64\n\n30,469\n\n0\n\n(28)\n\n30,441\n\nMore Personal Computing\n12,531\n\n0\n\n111\n\n12,642\n\n51,235(a)\n\n125(a)\n\n64,002\n\nTotal\n$ 67,524\n\n$ 234\n\n$ 128\n\n$ 67,886\n\n$ 51,235\n\n$ 99\n\n$ 119,220\n\nIncludes goodwill of $51.0 billion related to Activision Blizzard. See Note 8 – Business Combinations for further information.\n\nThe measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months. Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.\n\nAny change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are presented as “Other” in the table above. Also included in “Other” are business dispositions and transfers between segments due to reorganizations, as applicable.\n\nGoodwill Impairment\n\nWe test goodwill for impairment annually on May 1 at the reporting unit level, primarily using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital. We believe use of a discounted cash flow approach is the most reliable indicator of the fair values of the businesses.\n\nNo instances of impairment were identified in our May 1, 2024, May 1, 2023, or May 1, 2022 tests. As of June 30, 2024 and 2023, accumulated goodwill impairment was $11.3 billion.\n\nNOTE 10 — INTANGIBLE ASSETS\n\nThe components of intangible assets, all of which are finite-lived, were as follows:\n\n(In millions)\nGross\n\nCarrying\n\nAmount\n\nAccumulated\n\nAmortization\n\nNet\n\nCarrying\n\nAmount\n\nGross\n\nCarrying\n\nAmount\n\nAccumulated\n\nAmortization\n\nNet\n\nCarrying\n\nAmount\n\nJune 30,\n\n2024\n\n2023\n\nMarketing-related\n$ 16,500\n\n$ (3,101)\n\n$ 13,399\n\n$ 4,935\n\n$ (2,473)\n\n$ 2,462\n\nTechnology-based\n21,913\n\n(10,741)\n\n11,172\n\n11,245\n\n(7,589)\n\n3,656\n\nCustomer-related\n6,038\n\n(3,051)\n\n2,987\n\n7,281\n\n(4,047)\n\n3,234\n\nContract-based\n58\n\n(19)\n\n39\n\n29\n\n(15)\n\n14\n\nTotal\n$ 44,509(a)\n\n$ (16,912)\n\n$ 27,597\n\n$ 23,490\n\n$ (14,124)\n\n$ 9,366\n\nIncludes intangible assets of $22.0 billion related to Activision Blizzard. See Note 8 – Business Combinations for further information.\n\nNo material impairments of intangible assets were identified during fiscal years 2024, 2023, or 2022. We estimate that we have no significant residual value related to our intangible assets.\n\nThe components of intangible assets acquired during the periods presented were as follows:\n\n(In millions)\n\nAmount\nWeighted\n\nAverage Life\n\nAmount\nWeighted\n\nAverage Life\n\nYear Ended June 30,\n\n2024\n\n2023\n\nMarketing-related\n\n$ 11,619\n24 years\n\n$ 7\n5 years\n\nTechnology-based\n\n10,947\n4 years\n\n522\n7 years\n\nCustomer-related\n\n660\n4 years\n\n0\n0 years\n\nContract-based\n\n38\n4 years\n\n12\n3 years\n\nTotal\n\n$ 23,264\n14 years\n\n$ 541\n6 years\n\nIntangible assets amortization expense was $4.8 billion, $2.5 billion, and $2.0 billion for fiscal years 2024, 2023, and 2022, respectively.\n\nThe following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2024:\n\n(In millions)\n\nYear Ending June 30,\n\n2025\n$ 5,892\n\n2026\n4,471\n\n2027\n2,793\n\n2028\n1,909\n\n2029\n1,728\n\nThereafter\n10,804\n\nTotal\n$ 27,597\n\nNOTE 11 — DEBT\n\nShort-term Debt\n\nAs of June 30, 2024, we had $6.7 billion of commercial paper issued and outstanding, with a weighted average interest rate of 5.4% and maturities ranging from 28 days to 152 days. The estimated fair value of this commercial paper approximates its carrying value. As of June 30, 2023, we had no commercial paper issued or outstanding.\n\nLong-term Debt\n\nThe components of long-term debt were as follows:\n\n(In millions, issuance by calendar year)\nMaturities\n\n(calendar year)\n\nStated Interest\n\nRate\n\nEffective\n\nInterest\n\nRate\n\nJune 30,\n\n2024\n\nJune 30,\n\n2023\n\n2009 issuance of $3.8 billion\n2039\n\n5.20%\n\n5.24%\n\n$ 520\n\n$ 520\n\n2010 issuance of $4.8 billion\n2040\n\n4.50%\n\n4.57%\n\n486\n\n486\n\n2011 issuance of $2.3 billion\n2041\n\n5.30%\n\n5.36%\n\n718\n\n718\n\n2012 issuance of $2.3 billion\n2042\n\n3.50%\n\n3.57%\n\n454\n\n454\n\n2013 issuance of $5.2 billion\n2043\n\n3.75%–4.88%\n\n3.83%–4.92%\n\n314\n\n1,814\n\n2013 issuance of €4.1 billion\n2028–2033\n\n2.63%–3.13%\n\n2.69%–3.22%\n\n2,465\n\n2,509\n\n2015 issuance of $23.8 billion\n2025–2055\n\n2.70%–4.75%\n\n2.77%–4.78%\n\n9,805\n\n9,805\n\n2016 issuance of $19.8 billion\n2026–2056\n\n2.40%–3.95%\n\n2.46%–4.03%\n\n7,930\n\n9,430\n\n2017 issuance of $17.1 billion (a)\n2026–2057\n\n3.30%–4.50%\n\n3.38%–5.49%\n\n6,833\n\n8,945\n\n2020 issuance of $10.1 billion (a)\n2030–2060\n\n1.35%–2.68%\n\n2.53%–5.43%\n\n10,111\n\n10,000\n\n2021 issuance of $8.2 billion\n2052–2062\n\n2.92%–3.04%\n\n2.92%–3.04%\n\n8,185\n\n8,185\n\n2023 issuance of $0.1 billion (a)\n2026–2050\n\n1.35%–4.50%\n\n5.16%–5.49%\n\n56\n\n0\n\n2024 issuance of $3.3 billion (a)\n2026–2050\n\n1.35%–4.50%\n\n5.16%–5.49%\n\n 3,344\n\n0\n\nTotal face value\n51,221\n\n52,866\n\nUnamortized discount and issuance costs\n(1,227)\n\n(438)\n\nHedge fair value adjustments (b)\n(81)\n\n(106)\n\nPremium on debt exchange\n(4,976)\n\n(5,085)\n\nTotal debt\n44,937\n\n47,237\n\nCurrent portion of long-term debt\n(2,249)\n\n(5,247)\n\nLong-term debt\n$ 42,688\n\n$ 41,990\n\nIncludes $3.6 billion of debt at face value related to the Activision Blizzard acquisition, the majority of which was exchanged for Microsoft registered securities in June 2024. See Note 8 – Business Combinations for further information.\n\nRefer to Note 5 – Derivatives for further information on the interest rate swaps related to fixed-rate debt.\n\nAs of June 30, 2024 and 2023, the estimated fair value of long-term debt, including the current portion, was $42.3 billion and $46.2 billion, respectively. The estimated fair values are based on Level 2 inputs.\n\nDebt in the table above is comprised of senior unsecured obligations and ranks equally with our other outstanding obligations. Interest is paid semi-annually, except for the Euro-denominated debt, which is paid annually. Cash paid for interest on our debt for fiscal years 2024, 2023, and 2022 was $1.7 billion, $1.7 billion, and $1.9 billion, respectively.\n\nThe following table outlines maturities of our long-term debt, including the current portion, as of June 30, 2024:\n\n(In millions)\n\nYear Ending June 30,\n\n2025\n$ 2,250\n\n2026\n3,000\n\n2027\n9,250\n\n2028\n0\n\n2029\n1,876\n\nThereafter\n34,845\n\nTotal\n$ 51,221\n\nNOTE 12 — INCOME TAXES\n\nProvision for Income Taxes\n\nThe components of the provision for income taxes were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nCurrent Taxes\n\nU.S. federal\n$ 12,165\n\n$ 14,009\n\n$ 8,329\n\nU.S. state and local\n2,366\n\n2,322\n\n1,679\n\nForeign\n9,858\n\n6,678\n\n6,672\n\nCurrent taxes\n$ 24,389\n\n$ 23,009\n\n$ 16,680\n\nDeferred Taxes\n\nU.S. federal\n$ (4,791)\n\n$ (6,146)\n\n$ (4,815)\n\nU.S. state and local\n(379)\n\n(477)\n\n(1,062)\n\nForeign\n432\n\n564\n\n175\n\nDeferred taxes\n$ (4,738)\n\n$ (6,059)\n\n$ (5,702)\n\nProvision for income taxes\n$ 19,651\n\n$ 16,950\n\n$ 10,978\n\nU.S. and foreign components of income before income taxes were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nU.S.\n$ 62,886\n\n$ 52,917\n\n$ 47,837\n\nForeign\n44,901\n\n36,394\n\n35,879\n\nIncome before income taxes\n$ 107,787\n\n$ 89,311\n\n$ 83,716\n\nEffective Tax Rate\n\nThe items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate were as follows:\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nFederal statutory rate\n21.0%\n\n21.0%\n\n21.0%\n\nEffect of:\n\nForeign earnings taxed at lower rates\n(1.4)%\n\n(1.8)%\n\n(1.3)%\n\nImpact of intangible property transfers\n0%\n\n0%\n\n(3.9)%\n\nForeign-derived intangible income deduction\n(1.1)%\n\n(1.3)%\n\n(1.1)%\n\nState income taxes, net of federal benefit\n1.5%\n\n1.6%\n\n1.4%\n\nResearch and development credit\n(1.1)%\n\n(1.1)%\n\n(0.9)%\n\nExcess tax benefits relating to stock-based compensation\n(1.1)%\n\n(0.7)%\n\n(1.9)%\n\nInterest, net\n1.1%\n\n0.8%\n\n0.5%\n\nOther reconciling items, net\n(0.7)%\n\n0.5%\n\n(0.7)%\n\nEffective rate\n18.2%\n\n19.0%\n\n13.1%\n\nIn the first quarter of fiscal year 2022, we transferred certain intangible properties from our Puerto Rico subsidiary to the U.S. The transfer of intangible properties resulted in a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022, as the value of future U.S. tax deductions exceeded the current tax liability from the U.S. global intangible low-taxed income (“GILTI”) tax.\n\nThe decrease from the federal statutory rate in fiscal year 2024 and 2023 is primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland. The decrease from the federal statutory rate in fiscal year 2022 is primarily due to the net income tax benefit related to the transfer of intangible properties, earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland, and tax benefits relating to stock-based compensation. In fiscal years 2024 and 2023, our foreign regional operating center in Ireland, which is taxed at a rate lower than the U.S. rate, generated 83% and 81% of our foreign income before tax. In fiscal year 2022, our foreign regional operating centers in Ireland and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated 71% of our foreign income before tax. Other reconciling items, net consists primarily of tax credits and GILTI tax, and in fiscal year 2024, includes tax benefits from tax law changes. In fiscal year 2024, tax benefits from tax law changes primarily relates to the issuance of Notice 2023-55 and Notice 2023-80 by the Internal Revenue Service (“IRS”) and U.S. Treasury Department. Notice 2023-55, issued in the first quarter of fiscal year 2024, delayed the effective date of final foreign tax credit regulations to fiscal year 2024 for Microsoft. Notice 2023-80, issued in the second quarter of fiscal year 2024, further delayed the effective date of final foreign tax credit regulations indefinitely. In fiscal years 2024, 2023, and 2022, there were no individually significant other reconciling items.\n\nThe decrease in our effective tax rate for fiscal year 2024 compared to fiscal year 2023 was primarily due to tax benefits from tax law changes, including the delay of the effective date of final foreign tax credit regulations. The increase in our effective tax rate for fiscal year 2023 compared to fiscal year 2022 was primarily due to a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of intangible properties and a decrease in tax benefits relating to stock-based compensation.\n\nThe components of the deferred income tax assets and liabilities were as follows:\n\n(In millions)\n\nJune 30,\n2024\n\n2023\n\nDeferred Income Tax Assets\n\nStock-based compensation expense\n$ 765\n\n$ 681\n\nAccruals, reserves, and other expenses\n4,381\n\n3,131\n\nLoss and credit carryforwards\n1,741\n\n1,441\n\nAmortization\n4,159\n\n9,440\n\nLeasing liabilities\n6,504\n\n5,041\n\nUnearned revenue\n3,717\n\n3,296\n\nBook/tax basis differences in investments and debt\n9\n\n373\n\nCapitalized research and development\n11,442\n\n6,958\n\nOther\n426\n\n489\n\nDeferred income tax assets\n33,144\n\n30,850\n\nLess valuation allowance\n(1,045)\n\n(939)\n\nDeferred income tax assets, net of valuation allowance\n$ 32,099\n\n$ 29,911\n\nDeferred Income Tax Liabilities\n\nLeasing assets\n$ (6,503)\n\n$ (4,680)\n\nDepreciation\n(3,940)\n\n(2,674)\n\nDeferred tax on foreign earnings\n(1,837)\n\n(2,738)\n\nOther\n(167)\n\n(89)\n\nDeferred income tax liabilities\n$ (12,447)\n\n$ (10,181)\n\nNet deferred income tax assets\n$ 19,652\n\n$ 19,730\n\nReported As\n\nOther long-term assets\n$ 22,270\n\n$ 20,163\n\nLong-term deferred income tax liabilities\n(2,618)\n\n(433)\n\nNet deferred income tax assets\n$ 19,652\n\n$ 19,730\n\nDeferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or recovered.\n\nAs of June 30, 2024, we had federal, state, and foreign net operating loss carryforwards of $476 million, $899 million, and $2.6 billion, respectively. The federal and state net operating loss carryforwards have varying expiration dates ranging from fiscal year 2025 to 2044 or indefinite carryforward periods, if not utilized. The majority of our foreign net operating loss carryforwards do not expire. Certain acquired net operating loss carryforwards are subject to an annual limitation but are expected to be realized with the exception of those which have a valuation allowance. As of June 30, 2024, we had $456 million federal capital loss carryforwards for U.S. tax purposes from our acquisition of Nuance. The federal capital loss carryforwards are subject to an annual limitation and will expire in fiscal year 2025.\n\nThe valuation allowance disclosed in the table above relates to the foreign net operating loss carryforwards, federal capital loss carryforwards, and other net deferred tax assets that may not be realized.\n\nIncome taxes paid, net of refunds, were $23.4 billion, $23.1 billion, and $16.0 billion in fiscal years 2024, 2023, and 2022, respectively.\n\nUncertain Tax Positions\n\nGross unrecognized tax benefits related to uncertain tax positions as of June 30, 2024, 2023, and 2022, were $22.8 billion, $17.1 billion, and $15.6 billion, respectively, which were primarily included in long-term income taxes in our consolidated balance sheets. If recognized, the resulting tax benefit would affect our effective tax rates for fiscal years 2024, 2023, and 2022 by $19.6 billion, $14.4 billion, and $13.3 billion, respectively.\n\nAs of June 30, 2024, 2023, and 2022, we had accrued interest expense related to uncertain tax positions of $6.8 billion, $5.2 billion, and $4.3 billion, respectively, net of income tax benefits. The provision for income taxes for fiscal years 2024, 2023, and 2022 included interest expense related to uncertain tax positions of $1.5 billion, $918 million, and $36 million, respectively, net of income tax benefits.\n\nThe aggregate changes in the gross unrecognized tax benefits related to uncertain tax positions were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nBeginning unrecognized tax benefits\n$ 17,120\n\n$ 15,593\n\n$ 14,550\n\nDecreases related to settlements\n(76)\n\n(329)\n\n(317)\n\nIncreases for tax positions related to the current year\n1,903\n\n1,051\n\n1,145\n\nIncreases for tax positions related to prior years (a)\n4,289\n\n870\n\n461\n\nDecreases for tax positions related to prior years\n(464)\n\n(60)\n\n(246)\n\nDecreases due to lapsed statutes of limitations\n(12)\n\n(5)\n\n0\n\nEnding unrecognized tax benefits\n$ 22,760\n\n$ 17,120\n\n$ 15,593\n\nFiscal year 2024 includes unrecognized tax benefits of $3.4 billion related to the acquisition of Activision Blizzard. See Note 8 – Business Combinations for further information.\n\nWe remain under audit by the IRS for tax years 2014 to 2017. With respect to the audit for tax years 2004 to 2013, on September 26, 2023, we received Notices of Proposed Adjustment (“NOPAs”) from the IRS. The primary issues in the NOPAs relate to intercompany transfer pricing. In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest. As of June 30, 2024, we believe our allowances for income tax contingencies are adequate. We disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals office and, if necessary, judicial proceedings. We do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our income tax contingencies for these issues within the next 12 months.\n\nWe are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years 1996 to 2023, some of which are currently under audit by local tax authorities. The resolution of each of these audits is not expected to be material to our consolidated financial statements.\n\nNOTE 13 — UNEARNED REVENUE\n\nUnearned revenue by segment was as follows:\n\n(In millions)\n\nJune 30,\n2024\n\n2023\n\nProductivity and Business Processes\n$ 30,879\n\n$ 27,572\n\nIntelligent Cloud\n23,117\n\n21,563\n\nMore Personal Computing\n6,188\n\n4,678\n\nTotal\n$ 60,184\n\n$ 53,813\n\nChanges in unearned revenue were as follows:\n\n(In millions)\n\nYear Ended June 30, 2024\n\nBalance, beginning of period\n\n$ 53,813\n\nDeferral of revenue\n\n148,701\n\nRecognition of unearned revenue\n\n(142,330)\n\nBalance, end of period\n\n$ 60,184\n\nRevenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $275 billion as of June 30, 2024, of which $269 billion is related to the commercial portion of revenue. We expect to recognize approximately 45% of our total company remaining performance obligation revenue over the next 12 months and the remainder thereafter.\n\nNOTE 14 — LEASES\n\nWe have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. Our leases have remaining lease terms of less than 1 year to 17 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.\n\nThe components of lease expense were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nOperating lease cost\n$ 3,555\n\n$ 2,875\n\n$ 2,461\n\nFinance lease cost:\n\nAmortization of right-of-use assets\n$ 1,800\n\n$ 1,352\n\n$ 980\n\nInterest on lease liabilities\n734\n\n501\n\n429\n\nTotal finance lease cost\n$ 2,534\n\n$ 1,853\n\n$ 1,409\n\nSupplemental cash flow information related to leases was as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nCash paid for amounts included in the measurement of lease liabilities:\n\nOperating cash flows from operating leases\n$ 3,550\n\n$ 2,706\n\n$ 2,368\n\nOperating cash flows from finance leases\n734\n\n501\n\n429\n\nFinancing cash flows from finance leases\n1,286\n\n1,056\n\n896\n\nRight-of-use assets obtained in exchange for lease obligations:\n\nOperating leases\n6,703\n\n3,514\n\n5,268\n\nFinance leases\n11,633\n\n3,128\n\n4,234\n\nSupplemental balance sheet information related to leases was as follows:\n\n(In millions, except lease term and discount rate)\n\nJune 30,\n2024\n\n2023\n\nOperating Leases\n\nOperating lease right-of-use assets\n$ 18,961\n\n$ 14,346\n\nOther current liabilities\n$ 3,580\n\n$ 2,409\n\nOperating lease liabilities\n15,497\n\n12,728\n\nTotal operating lease liabilities\n$ 19,077\n\n$ 15,137\n\nFinance Leases\n\nProperty and equipment, at cost\n$ 32,248\n\n$ 20,538\n\nAccumulated depreciation\n(6,386)\n\n(4,647)\n\nProperty and equipment, net\n$ 25,862\n\n$ 15,891\n\nOther current liabilities\n$ 2,349\n\n$ 1,197\n\nOther long-term liabilities\n24,796\n\n15,870\n\nTotal finance lease liabilities\n$ 27,145\n\n$ 17,067\n\nWeighted Average Remaining Lease Term\n\nOperating leases\n7 years\n\n8 years\n\nFinance leases\n12 years\n\n11 years\n\nWeighted Average Discount Rate\n\nOperating leases\n3.3%\n\n2.9%\n\nFinance leases\n3.9%\n\n3.4%\n\nThe following table outlines maturities of our lease liabilities as of June 30, 2024:\n\n(In millions)\n\nYear Ending June 30,\nOperating\n\nLeases\n\nFinance\n\nLeases\n\n2025\n$ 4,124\n\n$ 3,311\n\n2026\n3,549\n\n3,021\n\n2027\n2,981\n\n3,037\n\n2028\n2,405\n\n3,026\n\n2029\n1,924\n\n2,638\n\nThereafter\n6,587\n\n19,116\n\nTotal lease payments\n21,570\n\n34,149\n\nLess imputed interest\n(2,493)\n\n(7,004)\n\nTotal\n$ 19,077\n\n$ 27,145\n\nAs of June 30, 2024, we had additional operating and finance leases, primarily for datacenters, that had not yet commenced of $8.6 billion and $108.4 billion, respectively. These operating and finance leases will commence between fiscal year 2025 and fiscal year 2030 with lease terms of 1 year to 20 years.\n\nNOTE 15 — CONTINGENCIES\n\nU.S. Cell Phone Litigation\n\nMicrosoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a defendant in 45 lawsuits filed in the Superior Court for the District of Columbia by individual plaintiffs who allege that radio emissions from cellular handsets caused their brain tumors and other adverse health effects. We assumed responsibility for these claims in our agreement to acquire Nokia’s Devices and Services business and have been substituted for the Nokia defendants. Twelve of these cases were consolidated for certain pre-trial proceedings; the remaining cases are stayed. In a separate 2009 decision, the Court of Appeals for the District of Columbia held that adverse health effect claims arising from the use of cellular handsets that operate within the U.S. Federal Communications Commission radio frequency emission guidelines (“FCC Guidelines”) are pre-empted by federal law. The plaintiffs allege that their handsets either operated outside the FCC Guidelines or were manufactured before the FCC Guidelines went into effect. The lawsuits also allege an industry-wide conspiracy to manipulate the science and testing around emission guidelines.\n\nIn 2013, the defendants in the consolidated cases moved to exclude the plaintiffs’ expert evidence of general causation on the basis of flawed scientific methodologies. In 2014, the trial court granted in part and denied in part the defendants’ motion to exclude the plaintiffs’ general causation experts. The defendants filed an interlocutory appeal to the District of Columbia Court of Appeals challenging the standard for evaluating expert scientific evidence. In October 2016, the Court of Appeals issued its decision adopting the standard advocated by the defendants and remanding the cases to the trial court for further proceedings under that standard. The plaintiffs have filed supplemental expert evidence, portions of which were stricken by the court. A hearing on general causation took place in September of 2022. In April of 2023, the court granted defendants’ motion to strike the testimony of plaintiffs’ experts that cell phones cause brain cancer and entered an order excluding all of plaintiffs’ experts from testifying. The parties agreed to a stipulated dismissal of the consolidated cases to allow plaintiffs to appeal the expert testimony order. Plaintiffs appealed the court’s order in August of 2023, and the parties have filed their briefs on the appeal. A hearing on the status of the stayed cases occurred in December of 2023. In July 2024, the court entered summary judgment in nine of the stayed cases on the grounds that plaintiffs had agreed to be bound by the general causation outcome in the consolidated cases.\n\nIrish Data Protection Commission Matter\n\nIn 2018, the Irish Data Protection Commission (“IDPC”) began investigating a complaint against LinkedIn as to whether LinkedIn’s targeted advertising practices violated the recently implemented European Union General Data Protection Regulation (“GDPR”). Microsoft cooperated throughout the period of inquiry. In April 2023, the IDPC provided LinkedIn with a non-public preliminary draft decision alleging GDPR violations and proposing a fine. In July 2024, the IDPC provided LinkedIn with a revised non-public draft decision. There is no set timeline for the IDPC to issue a final decision, at which time Microsoft will consider its options to appeal.\n\nOther Contingencies\n\nWe also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact in our consolidated financial statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.\n\nAs of June 30, 2024, we accrued aggregate legal liabilities of $641 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $600 million in aggregate beyond recorded amounts are reasonably possible. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact in our consolidated financial statements for the period in which the effects become reasonably estimable.\n\nNOTE 16 — STOCKHOLDERS’ EQUITY\n\nShares Outstanding\n\nShares of common stock outstanding were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nBalance, beginning of year\n7,432\n\n7,464\n\n7,519\n\nIssued\n34\n\n37\n\n40\n\nRepurchased\n(32)\n\n(69)\n\n(95)\n\nBalance, end of year\n7,434\n\n7,432\n\n7,464\n\nShare Repurchases\n\nOn September 18, 2019, our Board of Directors approved a share repurchase program authorizing up to $40.0 billion in share repurchases. This share repurchase program commenced in February 2020 and was completed in November 2021.\n\nOn September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $60.0 billion in share repurchases. This share repurchase program commenced in November 2021, following completion of the program approved on September 18, 2019, has no expiration date, and may be terminated at any time. As of June 30, 2024, $10.3 billion remained of this $60.0 billion share repurchase program.\n\nWe repurchased the following shares of common stock under the share repurchase programs:\n\n(In millions)\nShares\n\nAmount\n\nShares\n\nAmount\n\nShares\n\nAmount\n\nYear Ended June 30,\n2024\n2023\n2022\n\nFirst Quarter\n11\n\n$ 3,560\n\n17\n\n$ 4,600\n\n21\n\n$ 6,200\n\nSecond Quarter\n7\n\n2,800\n\n20\n\n4,600\n\n20\n\n6,233\n\nThird Quarter\n7\n\n2,800\n\n18\n\n4,600\n\n26\n\n7,800\n\nFourth Quarter\n7\n\n2,800\n\n14\n\n4,600\n\n28\n\n7,800\n\nTotal\n32\n\n$ 11,960\n\n69\n\n$ 18,400\n\n95\n\n$ 28,033\n\nAll repurchases were made using cash resources. Shares repurchased during the first quarter of fiscal year 2022 were under the share repurchase program approved on September 18, 2019. Shares repurchased during the second quarter of fiscal year 2022 were under the share repurchase programs approved on September 18, 2019 and September 14, 2021. All other shares repurchased were under the share repurchase program approved on September 14, 2021. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $5.3 billion, $3.8 billion, and $4.7 billion for fiscal years 2024, 2023, and 2022, respectively.\n\nDividends\n\nOur Board of Directors declared the following dividends:\n\nDeclaration Date\nRecord Date\nPayment Date\n\nDividend\n\nPer Share\n\nAmount\n\nFiscal Year 2024\n\n(In millions)\n\nSeptember 19, 2023\nNovember 16, 2023\nDecember 14, 2023\n\n$ 0.75\n\n$ 5,574\n\nNovember 28, 2023\nFebruary 15, 2024\nMarch 14, 2024\n\n0.75\n\n5,573\n\nMarch 12, 2024\nMay 16, 2024\nJune 13, 2024\n\n0.75\n\n5,574\n\nJune 12, 2024\nAugust 15, 2024\nSeptember 12, 2024\n\n0.75\n\n5,575\n\nTotal\n\n$ 3.00\n\n$ 22,296\n\nFiscal Year 2023\n\nSeptember 20, 2022\nNovember 17, 2022\nDecember 8, 2022\n\n$ 0.68\n\n$ 5,066\n\nNovember 29, 2022\nFebruary 16, 2023\nMarch 9, 2023\n\n0.68\n\n5,059\n\nMarch 14, 2023\nMay 18, 2023\nJune 8, 2023\n\n0.68\n\n5,054\n\nJune 13, 2023\nAugust 17, 2023\nSeptember 14, 2023\n\n0.68\n\n5,051\n\nTotal\n\n$ 2.72\n\n$ 20,230\n\nThe dividend declared on June 12, 2024 was included in other current liabilities as of June 30, 2024.\n\nNOTE 17 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)\n\nThe following table summarizes the changes in accumulated other comprehensive income (loss) by component:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nDerivatives\n\nBalance, beginning of period\n$ (27)\n\n$ (13)\n\n$ (19)\n\nUnrealized gains (losses), net of tax of $(4), $9, and $(15)\n(14)\n\n34\n\n(57)\n\nReclassification adjustments for (gains) losses included in other income (expense), net\n48\n\n(61)\n\n79\n\nTax expense (benefit) included in provision for income taxes\n(10)\n\n13\n\n(16)\n\nAmounts reclassified from accumulated other comprehensive loss\n38\n\n(48)\n\n63\n\nNet change related to derivatives, net of tax of $6, $(4), and $1\n24\n\n(14)\n\n6\n\nBalance, end of period\n$ (3)\n\n$ (27)\n\n$ (13)\n\nInvestments\n\nBalance, beginning of period\n$ (3,582)\n\n$ (2,138)\n\n$ 3,222\n\nUnrealized gains (losses), net of tax of $247, $(393), and $(1,440)\n915\n\n(1,523)\n\n(5,405)\n\nReclassification adjustments for losses included in other income (expense), net\n53\n\n99\n\n57\n\nTax benefit included in provision for income taxes\n(11)\n\n(20)\n\n(12)\n\nAmounts reclassified from accumulated other comprehensive loss\n42\n\n79\n\n45\n\nNet change related to investments, net of tax of $258, $(373), and $(1,428)\n957\n\n(1,444)\n\n(5,360)\n\nBalance, end of period\n$ (2,625)\n\n$ (3,582)\n\n$ (2,138)\n\nTranslation Adjustments and Other\n\nBalance, beginning of period\n$ (2,734)\n\n$ (2,527)\n\n$ (1,381)\n\nTranslation adjustments and other, net of tax of $0, $0, and $0\n(228)\n\n(207)\n\n(1,146)\n\nBalance, end of period\n$ (2,962)\n\n$ (2,734)\n\n$ (2,527)\n\nAccumulated other comprehensive loss, end of period\n$ (5,590)\n\n$ (6,343)\n\n$ (4,678)\n\nNOTE 18 — EMPLOYEE STOCK AND SAVINGS PLANS\n\nWe grant stock-based compensation to employees and directors. Awards that expire or are canceled without delivery of shares generally become available for issuance under the plans. We issue new shares of Microsoft common stock to satisfy vesting of awards granted under our stock plans. We also have an ESPP for all eligible employees.\n\nStock-based compensation expense and related income tax benefits were as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nStock-based compensation expense\n$ 10,734\n\n$ 9,611\n\n$ 7,502\n\nIncome tax benefits related to stock-based compensation\n1,826\n\n1,651\n\n1,293\n\nStock Plans\n\nStock awards entitle the holder to receive shares of Microsoft common stock as the award vests. Stock awards generally vest over a service period of four years or five years.\n\nExecutive Incentive Plan\n\nUnder the Executive Incentive Plan, the Compensation Committee approves stock awards to executive officers and certain senior executives. RSUs generally vest ratably over a service period of four years. PSUs generally vest over a performance period of three years. The number of shares the PSU holder receives is based on the extent to which the corresponding performance goals have been achieved.\n\nActivity for All Stock Plans\n\nThe fair value of stock awards was estimated on the date of grant using the following assumptions:\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nDividends per share (quarterly amounts)\n$ 0.68 – 0.75\n\n$ 0.62 – 0.68\n\n$ 0.56 – 0.62\n\nInterest rates\n3.8% – 5.6%\n\n2.0% – 5.4%\n\n0.03% – 3.6%\n\nDuring fiscal year 2024, the following activity occurred under our stock plans:\n\nShares\n\nWeighted Average\n\nGrant-Date Fair Value\n\n(In millions)\n\nStock Awards\n\nNonvested balance, beginning of year\n\n96\n\n$ 250.37\n\nGranted (a)\n\n41\n\n339.46\n\nVested\n\n(42)\n\n246.71\n\nForfeited\n\n(7)\n\n270.59\n\nNonvested balance, end of year\n\n88\n\n$ 292.28\n\nIncludes 1 million of PSUs granted at target and performance adjustments above target levels for each of the fiscal years 2024, 2023, and 2022.\n\nAs of June 30, 2024, total unrecognized compensation costs related to stock awards were $20.3 billion. These costs are expected to be recognized over a weighted average period of three years. The weighted average grant-date fair value of stock awards granted was $339.46, $252.59, and $291.22 for fiscal years 2024, 2023, and 2022, respectively. The fair value of stock awards vested was $16.0 billion, $11.9 billion, and $14.1 billion, for fiscal years 2024, 2023, and 2022, respectively. As of June 30, 2024, an aggregate of 129 million shares were authorized for future grant under our stock plans.\n\nEmployee Stock Purchase Plan\n\nWe have an ESPP for all eligible employees. Shares of our common stock may be purchased by employees at three-month intervals at 90% of the fair market value on the last trading day of each three-month period. Employees may purchase shares having a value not exceeding 15% of their gross compensation during an offering period.\n\nEmployees purchased the following shares during the periods presented:\n\n(Shares in millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nShares purchased\n6\n\n7\n\n7\n\nAverage price per share\n$ 339.46\n\n$ 245.59\n\n$ 259.55\n\nAs of June 30, 2024, 68 million shares of our common stock were reserved for future issuance through the ESPP.\n\nSavings Plans\n\nWe have savings plans in the U.S. that qualify under Section 401(k) of the Internal Revenue Code, and a number of savings plans in international locations. Eligible U.S. employees may contribute a portion of their salary into the savings plans, subject to certain limitations. We match a portion of each dollar a participant contributes into the plans. Employer-funded retirement benefits for all plans were $1.7 billion, $1.6 billion, and $1.4 billion in fiscal years 2024, 2023, and 2022, respectively, and were expensed as contributed.\n\nNOTE 19 — SEGMENT INFORMATION AND GEOGRAPHIC DATA\n\nIn its operation of the business, management, including our chief operating decision maker, who is also our Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with GAAP. During the periods presented, we reported our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.\n\nOur reportable segments are described below.\n\nProductivity and Business Processes\n\nOur 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:\n\nOffice Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Copilot for Microsoft 365.\n\nOffice Consumer, including Microsoft 365 Consumer and Copilot Pro subscriptions, Office licensed on-premises, and other Office services.\n\nLinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.\n\nDynamics business solutions, 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.\n\nIntelligent Cloud\n\nOur Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business and developers. This segment primarily comprises:\n\nServer 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.\n\nEnterprise and partner services, including Enterprise Support Services, Industry Solutions, Nuance professional services, Microsoft Partner Network, and Learning Experience.\n\nMore Personal Computing\n\nOur More Personal Computing segment consists of products and services that put customers at the center of the experience with our technology. This segment primarily comprises:\n\nWindows, including Windows OEM licensing and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows Internet of Things.\n\nDevices, including Surface, HoloLens, and PC accessories.\n\nGaming, including Xbox hardware and Xbox content and services, comprising first-party content (such as Activision Blizzard) and third-party content, including games and in-game content; Xbox Game Pass and other subscriptions; Xbox Cloud Gaming; advertising; third-party disc royalties; and other cloud services.\n\nSearch and news advertising, comprising Bing (including Copilot), Microsoft News, Microsoft Edge, and third-party affiliates.\n\nRevenue and costs are generally directly attributed to our segments. However, due to the integrated structure of our business, certain revenue recognized and costs incurred by one segment may benefit other segments. Revenue from certain contracts is allocated among the segments based on the relative value of the underlying products and services, which can include allocation based on actual prices charged, prices when sold separately, or estimated costs plus a profit margin. Cost of revenue is allocated in certain cases based on a relative revenue methodology. Operating expenses that are allocated primarily include those relating to marketing of products and services from which multiple segments benefit and are generally allocated based on relative gross margin.\n\nIn addition, certain costs are incurred at a corporate level and allocated to our segments. These allocated costs generally include legal, including settlements and fines, information technology, human resources, finance, excise taxes, field selling, shared facilities services, customer service and support, and severance incurred as part of a corporate program. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated and is generally based on relative gross margin or relative headcount.\n\nSegment revenue and operating income were as follows during the periods presented:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nRevenue\n\nProductivity and Business Processes\n$ 77,728\n\n$ 69,274\n\n$ 63,364\n\nIntelligent Cloud\n105,362\n\n87,907\n\n74,965\n\nMore Personal Computing\n62,032\n\n54,734\n\n59,941\n\nTotal\n$ 245,122\n\n$ 211,915\n\n$ 198,270\n\nOperating Income\n\nProductivity and Business Processes\n$ 40,540\n\n$ 34,189\n\n$ 29,690\n\nIntelligent Cloud\n49,584\n\n37,884\n\n33,203\n\nMore Personal Computing\n19,309\n\n16,450\n\n20,490\n\nTotal\n$ 109,433\n\n$ 88,523\n\n$ 83,383\n\nNo sales to an individual customer or country other than the United States accounted for more than 10% of revenue for fiscal years 2024, 2023, or 2022. Revenue, classified by the major geographic areas in which our customers were located, was as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nUnited States (a)\n$ 124,704\n\n$ 106,744\n\n$ 100,218\n\nOther countries\n120,418\n\n105,171\n\n98,052\n\nTotal\n$ 245,122\n\n$ 211,915\n\n$ 198,270\n\nIncludes billings to OEMs and certain multinational organizations because of the nature of these businesses and the impracticability of determining the geographic source of the revenue.\n\nRevenue, classified by significant product and service offerings, was as follows:\n\n(In millions)\n\nYear Ended June 30,\n2024\n\n2023\n\n2022\n\nServer products and cloud services\n$ 97,726\n\n$ 79,970\n\n$ 67,350\n\nOffice products and cloud services\n54,875\n\n48,848\n\n44,970\n\nWindows\n23,244\n\n21,507\n\n24,732\n\nGaming\n21,503\n\n15,466\n\n16,230\n\nLinkedIn\n16,372\n\n14,989\n\n13,631\n\nSearch and news advertising\n12,576\n\n12,158\n\n11,526\n\nEnterprise and partner services\n7,594\n\n7,900\n\n7,605\n\nDynamics products and cloud services\n6,481\n\n5,437\n\n4,687\n\nDevices\n4,706\n\n5,521\n\n7,306\n\nOther\n45\n\n119\n\n233\n\nTotal\n$ 245,122\n\n$ 211,915\n\n$ 198,270\n\nWe have recast certain prior period amounts to conform to the way we internally manage and monitor our business.\n\nOur Microsoft Cloud revenue, which includes Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties, was $137.4 billion, $111.6 billion, and $91.4 billion in fiscal years 2024, 2023, and 2022, respectively. These amounts are primarily included in Server products and cloud services, Office products and cloud services, LinkedIn, and Dynamics products and cloud services in the table above.\n\nAssets are not allocated to segments for internal reporting presentations. A portion of amortization and depreciation is included with various other costs in an overhead allocation to each segment. It is impracticable for us to separately identify the amount of amortization and depreciation by segment that is included in the measure of segment profit or loss.\n\nLong-lived assets, excluding financial instruments and tax assets, classified by the location of the controlling statutory company and with countries over 10% of the total shown separately, were as follows:\n\n(In millions)\n\nJune 30,\n2024\n\n2023\n\n2022\n\nUnited States\n$ 186,106\n\n$ 114,380\n\n$ 106,430\n\nOther countries\n115,263\n\n72,859\n\n59,938\n\nTotal\n$ 301,369\n\n$ 187,239\n\n$ 166,368\n\nAuditor's Report\n\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\n\nTo the Stockholders and the Board of Directors of Microsoft Corporation\n\nOpinion on the Financial Statements\n\nWe have audited the accompanying consolidated balance sheets of Microsoft Corporation and subsidiaries (the “Company”) as of June 30, 2024 and 2023, the related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity, for each of the three years in the period ended June 30, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.\n\nWe have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 30, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting.\n\nBasis for Opinion\n\nThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.\n\nCritical Audit Matters\n\nThe critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.\n\nRevenue Recognition – Refer to Note 1 to the financial statements\n\nCritical Audit Matter Description\n\nThe Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company offers customers the ability to acquire multiple licenses of software products and services, including cloud-based services, in its customer agreements through its volume licensing programs.\n\nSignificant judgment is exercised by the Company in determining revenue recognition for certain customer agreements, and includes the following:\n\nDetermination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together, such as software licenses and related services that are sold with cloud-based services.\n\nThe pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.\n\nIdentification and treatment of contract terms that may impact the timing and amount of revenue recognized (e.g., variable consideration, optional purchases, and free services).\n\nDetermination of stand-alone selling prices for each distinct performance obligation and for products and services that are not sold separately.\n\nGiven these factors and due to the volume of transactions, the related audit effort in evaluating management’s judgments in determining revenue recognition for certain customer agreements was extensive and required a high degree of auditor judgment.\n\nHow the Critical Audit Matter Was Addressed in the Audit\n\nOur principal audit procedures related to the Company’s revenue recognition for certain customer agreements included the following:\n\nWe tested the effectiveness of controls related to the identification of distinct performance obligations, the determination of the timing of revenue recognition, and the estimation of variable consideration.\n\nWe evaluated management’s significant accounting policies related to certain customer agreements for reasonableness.\n\nWe selected a sample of customer agreements and performed the following procedures:\n\nObtained and read contract source documents for each selection, including master agreements, and other documents that were part of the agreement.\n\nTested management’s identification and treatment of contract terms.\n\nAssessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.\n\nWe evaluated the reasonableness of management’s estimate of stand-alone selling prices for products and services that are not sold separately.\n\nWe tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements.\n\nIncome Taxes – Uncertain Tax Positions – Refer to Note 12 to the financial statements\n\nCritical Audit Matter Description\n\nThe Company’s long-term income taxes liability includes uncertain tax positions related to transfer pricing issues that remain unresolved with the Internal Revenue Service (“IRS”). The Company remains under IRS audit, or subject to IRS audit, for tax years subsequent to 2003. In the current fiscal year, the Company received Notices of Proposed Adjustments (“NOPAs”) for the tax years 2004 to 2013, primarily related to intercompany transfer pricing. While the Company has settled a portion of the IRS audits, resolution of the remaining matters could have a material impact on the Company’s financial statements.\n\nConclusions on recognizing and measuring uncertain tax positions involve significant estimates and management judgment and include complex considerations of the Internal Revenue Code, related regulations, tax case laws, and prior-year audit settlements. Given the complexity and the subjective nature of certain transfer pricing issues that remain unresolved with the IRS, evaluating management’s estimates relating to their determination of uncertain tax positions required extensive audit effort and a high degree of auditor judgment, including involvement of our tax specialists.\n\nHow the Critical Audit Matter Was Addressed in the Audit\n\nOur principal audit procedures to evaluate management’s estimates of uncertain tax positions related to unresolved transfer pricing issues included the following:\n\nWe evaluated the appropriateness and consistency of management’s methods and assumptions used in the identification, recognition, measurement, and disclosure of uncertain tax positions, which included testing the effectiveness of the related internal controls.\n\nWe read and evaluated management’s documentation, including relevant accounting policies and information obtained by management from outside tax specialists, that detailed the basis of the uncertain tax positions.\n\nWe tested the reasonableness of management’s judgments regarding the future resolution of the uncertain tax positions, including an evaluation of the technical merits of the uncertain tax positions.\n\nFor those uncertain tax positions that had not been effectively settled, we evaluated whether management had appropriately considered new information, including the NOPAs received in the current fiscal year, that could significantly change the recognition, measurement, or disclosure of the uncertain tax positions.\n\nWe evaluated the reasonableness of management’s estimates by considering how tax law, including statutes, regulations, and case law, impacted management’s judgments.\n\nBusiness Combinations – Estimate for Valuation of Acquired Intangible Assets – Refer to Note 8 to the financial statements\n\nCritical Audit Matter Description\n\nOn October 13, 2023, the Company completed the acquisition of Activision Blizzard, Inc. The Company accounted for the Activision Blizzard, Inc., acquisition as a business combination and, accordingly, allocated the purchase price to the assets acquired and liabilities assumed based on their respective estimated fair values as of the date of acquisition. Identifiable intangible assets acquired included marketing-related intangible assets, technology-based intangible assets, and customer-related intangible assets. The excess of the purchase consideration over the fair value of identifiable assets acquired and liabilities assumed was recorded as goodwill.\n\nWe identified the fair value determination of certain marketing-related and technology-based intangible assets for the business combination as a critical audit matter due to the significant judgment required in determining their estimated fair values. Management’s estimates of fair value included assumptions for revenue and expense forecasts and the selection of appropriate discount rates. There was a high degree of auditor judgment and subjectivity in applying audit procedures and evaluating the significant assumptions relating to the estimates, including involvement of our fair value specialists.\n\nHow the Critical Audit Matter Was Addressed in the Audit\n\nOur audit procedures related to management’s estimates of the fair value of certain marketing-related and technology-based intangible assets acquired included the following, among others:\n\nWe tested the operating effectiveness of internal controls over the business combination, including internal controls over the revenue and expense forecasts and the selection of appropriate discount rates.\n\nWe assessed the knowledge, skills, abilities, and objectivity of management’s valuation specialist and evaluated the work performed.\n\nWhen assessing the reasonableness of assumptions related to forecasted revenue and expenses, we evaluated whether the assumptions used were reasonable considering historical financial information of Activision Blizzard, Inc., and the Company’s forecasted financial information.\n\nWith the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates by:\n\nTesting the source information underlying the discount rates and testing the mathematical accuracy of the calculations.\n\nDeveloping a range of independent estimates and comparing those to the discount rates selected by management.\n\n/s/    DELOITTE & TOUCHE LLP\n\nSeattle, Washington\n\nJuly 30, 2024\n\nWe have served as the Company’s auditor since 1983.\n\nControls & Procedures\n\nCHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE\n\nNot applicable.\n\nCONTROLS AND PROCEDURES\n\nUnder the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.\n\nREPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING\n\nOur management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our consolidated financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use, or disposition of company assets that could have a material effect on our consolidated financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected.\n\nManagement conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of June 30, 2024. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2024 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, 2024; their report follows.\n\nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\n\nTo the Stockholders and the Board of Directors of Microsoft Corporation\n\nOpinion on Internal Control over Financial Reporting\n\nWe have audited the internal control over financial reporting of Microsoft Corporation and subsidiaries (the “Company”) as of June 30, 2024, 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, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.\n\nWe have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2024, of the Company and our report dated July 30, 2024, expressed an unqualified opinion on those financial statements.\n\nAs described in Report of Management on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Activision Blizzard, Inc., which was acquired on October 13, 2023, and whose financial statements constitute less than 1 percent of total assets as of June 30, 2024 after excluding goodwill and intangible assets acquired, and 2 percent of total revenues for the year ended June 30, 2024. Accordingly, our audit did not include the internal control over financial reporting at Activision Blizzard, Inc.\n\nBasis for Opinion\n\nThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\nWe conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.\n\nDefinition and Limitations of Internal Control over Financial Reporting\n\nA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.\n\nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\n\n/s/ DELOITTE & TOUCHE LLP\n\nSeattle, Washington\n\nJuly 30, 2024\n\nDirectors & Officers\n\nDIRECTORS AND EXECUTIVE OFFICERS OF MICROSOFT CORPORATION\n\nDirectors\n\nSatya Nadella\n\nChairman and Chief Executive Officer, \n\nMicrosoft Corporation\n\nCatherine MacGregor 4\n\nGroup Chief Executive Officer, \n\nEngie S.A.\n\nCarlos A. Rodriguez 1,2\n\nDirector, Automatic Data \n\nProcessing, Inc.\n\nReid G. Hoffman 4\n\nPartner, Greylock Partners\n\nMark A. L. Mason 3\n\nChief Financial Officer, Citigroup Inc.\n\nCharles W. Scharf 2,3\n\nChief Executive Officer, President, \n\nand Director, Wells Fargo & Company\n\nHugh F. Johnston 1\n\nSenior Executive Vice President and \n\nChief Financial Officer, \n\nThe Walt Disney Company\n\nSandra E. Peterson 2,3\n\nLead Independent Director, \n\nMicrosoft Corporation \n\nOperating Partner, Clayton, Dubilier & Rice, LLC\n\nJohn W. Stanton 1,4\n\nFounder and Chairman, Trilogy \n\nPartnerships\n\nTeri L. List 1,3\n\nFormer Executive Vice President and Chief Financial Officer, Gap, Inc.\n\nPenny S. Pritzker 4\n\nFounder and Chairman, PSP \n\nPartners, LLC\n\nEmma N. Walmsley 2,4\n\nChief Executive Officer and Director, \n\nGSK, plc\n\nBoard Committees\n\nAudit Committee\n\nCompensation Committee\n\nGovernance and Nominating Committee\n\nEnvironmental, Social, and Public Policy Committee\n\nExecutive Officers\n\nSatya Nadella\n\nChairman and Chief Executive Officer\n\nTakeshi Numoto\n\nExecutive Vice President and Chief Marketing Officer\n\nJudson B. Althoff\n\nExecutive Vice President and Chief Commercial Officer\n\nBradford L. Smith\n\nVice Chair and President\n\nKathleen T. Hogan\n\nExecutive Vice President and Chief Human Resources Officer\n\nChristopher D. Young\n\nExecutive Vice President, Business Development, \n\nStrategy, and Ventures\n\nAmy E. Hood\n\nExecutive Vice President and Chief Financial Officer\n\nInvestor Relations\nInvestor Relations\n\nYou can contact Microsoft Investor Relations by calling toll-free at (800) 285-7772 or outside the United States, call (425) 706-4400. We can be contacted between the hours of 9:00 a.m. to 5:00 p.m. Pacific Time to answer investment-oriented questions about Microsoft.\n\nFor access to additional financial information, visit the Investor Relations website online at: www.microsoft.com/investor\n\nOur e-mail is msft@microsoft.com\n\nOur mailing address is:\n\n Investor Relations\n\nMicrosoft Corporation\n\nOne Microsoft Way\n\nRedmond, Washington 98052-6399 \n\nAttending the Annual Meeting\n\nThe 2024 Annual Shareholders Meeting will be held as a virtual-only meeting. Any shareholder can join the Annual Meeting, while shareholders of record as of September 30 2024, will be able to vote and submit questions during the meeting.\n\nDate: Tuesday, December 10, 2024\n\nTime: 8:30 a.m. Pacific Time\n\nVirtual Shareholder Meeting: www.virtualshareholdermeeting.com/MSFT24\nSubmit Your Question\n\nWe invite you to submit any questions via the proxy voting site at www.proxyvote.com. We will include as many of your questions as possible during the Q&A session of the meeting and will provide answers to questions on the Microsoft Investor Relations website under the Annual Meeting page.\nRegistered Shareholder Services\n\nComputershare, our transfer agent, can help you with a variety of shareholder related services including:\n\nChange of address\n\nLost stock certificates\n\nTransfer of stock to another person\n\nAdditional administrative services\n\nComputershare also administers a direct stock purchase plan and a dividend reinvestment program for the company.\n\nContact Computershare directly to find out more about these services and programs at 800-285-7772, option 1, or visit online at: https://www.computershare.com/Microsoft\n\nYou can e-mail the transfer agent at: web.queries@computershare.com\n\nYou can also send mail to the transfer agent at:\n\n Computershare\n\nP.O. Box 505000\n\nLouisville, KY 40233-5000\n\nShareholders can sign up for electronic alerts to access the annual report and proxy statement online. The service gets you the information you need faster and also gives you the power and convenience of online proxy voting. To sign up for this free service, visit the Annual Report site on the Investor Relations website at: http://www.microsoft.com/investor/AnnualReports/default.aspx\nEnvironmental, Social, and Governance (ESG)\n\nTo meet the expectations of our shareholder and other stakeholders and to and maintain their trust, Microsoft is committed to conducting our business in ways that are principled, transparent, and accountable. Microsoft works with our customers and partners to help the world use digital technology to address business and societal challenges around the globe. In advancing this work and our mission, Microsoft’s management benefits from the oversight and diverse perspectives offered by the Board of Directors and its committees, including key environmental and social matters listed in the charter of the Board’s Environmental, Social, and Public Policy Committee.\n\nTo learn more about Microsoft’s corporate governance and our environmental and social practices, please see our reporting at Microsoft.com/transparency.\n\n"}], "method": "HTML visible text; synthetic page 1", "total_pages": 1, "truncated": false}, "fy2025/evidence": {"year": 2025, "document": {"title": "Microsoft 2025 Annual Report", "url": "https://www.microsoft.com/investor/reports/ar25/index.html", "company": "Microsoft Corporation", "report_type": "annual", "period_end": "2025-06-30", "fiscal_year": 2025, "publication_date": null, "identity": "Microsoft 2025 Annual Report"}, "snapshot": {"url": "https://www.microsoft.com/investor/reports/ar25/index.html", "sha256": "564154a15ac28c0f7f72f304ae26b74c29cfca9f3eafe8d59595776769d621ca", "retrieved_at": "2026-10-01T08:22:28.931Z", "pages": [], "method": "HTML visible text; synthetic page 1", "total_pages": 1, "truncated": false, "chunks": 4}, "claims": [{"category": "reported_fact", "summary": "Revenue was $281.7 billion, up 15 percent.", "excerpt": "Revenue was $281.7 billion, up 15 percent.", "page": 1, "section": "CEO Letter", "target_date": null, "numeric_target": "$281.7 billion", "unit": "USD", "attribution": "Satya Nadella", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Operating income grew 17 percent to $128.5 billion.", "excerpt": "Operating income grew 17 percent to $128.5 billion.", "page": 1, "section": "CEO Letter", "target_date": null, "numeric_target": "$128.5 billion", "unit": "USD", "attribution": "Satya Nadella", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Azure surpassed $75 billion in revenue for the first time, up 34 percent.", "excerpt": "Azure surpassed $75 billion in revenue for the first time, up 34 percent.", "page": 1, "section": "CEO Letter", "target_date": null, "numeric_target": "$75 billion", "unit": "USD", "attribution": "Satya Nadella", "uncertainties": [], "is_highlight": true}, {"category": "measurable_promise", "summary": "Over the next five years, Microsoft will invest $4 billion in cash and AI cloud technology to schools, community and technical colleges, and nonprofit organizations.", "excerpt": "Over the next five years, we will invest $4 billion in cash and AI cloud technology to schools, community and technical colleges, and nonprofit organizations.", "page": 1, "section": "CEO Letter", "target_date": null, "numeric_target": "$4 billion", "unit": "USD", "attribution": "Satya Nadella", "uncertainties": [], "is_highlight": true}, {"category": "measurable_promise", "summary": "Skilling initiatives will help 20 million people earn AI credentials over the next two years.", "excerpt": "Our skilling initiatives will help 20 million people earn AI credentials over the next two years, from foundational fluency to advanced technical training.", "page": 1, "section": "CEO Letter", "target_date": null, "numeric_target": "20 million", "unit": "people", "attribution": "Satya Nadella", "uncertainties": [], "is_highlight": true}, {"category": "measurable_promise", "summary": "Microsoft announced five commitments to strengthen digital stability in Europe, including expanding cloud and AI infrastructure and upholding Europe’s digital resilience.", "excerpt": "In Europe, we announced five commitments to strengthen digital stability this year. They start with an expansion of our cloud and AI infrastructure, so every country can compete in the global economy. And they include a promise to uphold Europe’s digital resilience regardless of geopolitical and trade volatility.", "page": 1, "section": "CEO Letter", "target_date": null, "numeric_target": null, "unit": null, "attribution": "Satya Nadella", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Renewable energy procurement increased from 1.8 gigawatts in 2020 to 34 gigawatts in 2024.", "excerpt": "Our renewable energy procurement increased from 1.8 gigawatts in 2020 to 34 gigawatts in 2024, and we contracted nearly 30 million metric tons of carbon removal—playing a pivotal role in scaling the carbon removal market.", "page": 1, "section": "CEO Letter", "target_date": null, "numeric_target": "34 gigawatts", "unit": "GW", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Provided more than 1.5 million people with clean water and sanitation.", "excerpt": "We provided more than 1.5 million people with clean water and sanitation and plan to replenish more than 100 million cubic meters of water around the world.", "page": 1, "section": "CEO Letter", "target_date": null, "numeric_target": "1.5 million", "unit": "people", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "New Circular Centers contribute to reuse and recycling of nearly 91 percent of servers and components decommissioned from datacenters.", "excerpt": "We are getting closer to zero waste through new Circular Centers, which contribute to the reuse and recycling of nearly 91 percent of servers and components decommissioned from our datacenters.", "page": 1, "section": "CEO Letter", "target_date": null, "numeric_target": "91", "unit": "%", "attribution": "Microsoft", "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Microsoft Cloud revenue increased 23% to $168.9 billion.", "excerpt": "Microsoft Cloud revenue increased 23% to $168.9 billion.", "page": 1, "section": "Highlights from fiscal year 2025 compared with fiscal year 2024", "target_date": null, "numeric_target": "$168.9 billion", "unit": null, "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Microsoft 365 Commercial products and cloud services revenue increased 14% driven by Microsoft 365 Commercial cloud revenue growth of 15%.", "excerpt": "Microsoft 365 Commercial products and cloud services revenue increased 14% driven by Microsoft 365 Commercial cloud revenue growth of 15%.", "page": 1, "section": "Highlights from fiscal year 2025 compared with fiscal year 2024", "target_date": null, "numeric_target": "14%", "unit": "%", "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Microsoft 365 Consumer products and cloud services revenue increased 11% driven by Microsoft 365 Consumer cloud revenue growth of 11%.", "excerpt": "Microsoft 365 Consumer products and cloud services revenue increased 11% driven by Microsoft 365 Consumer cloud revenue growth of 11%.", "page": 1, "section": "Highlights from fiscal year 2025 compared with fiscal year 2024", "target_date": null, "numeric_target": "11%", "unit": "%", "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "LinkedIn revenue increased 9%.", "excerpt": "LinkedIn revenue increased 9%.", "page": 1, "section": "Highlights from fiscal year 2025 compared with fiscal year 2024", "target_date": null, "numeric_target": "9%", "unit": "%", "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Dynamics products and cloud services revenue increased 15% driven by Dynamics 365 revenue growth of 19%.", "excerpt": "Dynamics products and cloud services revenue increased 15% driven by Dynamics 365 revenue growth of 19%.", "page": 1, "section": "Highlights from fiscal year 2025 compared with fiscal year 2024", "target_date": null, "numeric_target": "15%", "unit": "%", "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Server products and cloud services revenue increased 23% driven by Azure and other cloud services revenue growth of 34%.", "excerpt": "Server products and cloud services revenue increased 23% driven by Azure and other cloud services revenue growth of 34%.", "page": 1, "section": "Highlights from fiscal year 2025 compared with fiscal year 2024", "target_date": null, "numeric_target": "23%", "unit": "%", "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "challenge", "summary": "Investments in cloud and AI infrastructure and devices will continue to increase operating costs and may decrease operating margins.", "excerpt": "The investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and may decrease our operating margins.", "page": 1, "section": "Economic Conditions, Challenges, and Risks", "target_date": null, "numeric_target": null, "unit": null, "attribution": null, "uncertainties": [], "is_highlight": false}, {"category": "challenge", "summary": "Success is highly dependent on ability to attract and retain qualified employees.", "excerpt": "Our success is highly dependent on our ability to attract and retain qualified employees.", "page": 1, "section": "Economic Conditions, Challenges, and Risks", "target_date": null, "numeric_target": null, "unit": null, "attribution": null, "uncertainties": [], "is_highlight": false}, {"category": "measurable_promise", "summary": "Microsoft has committed $32.1 billion for construction related to datacenters as of June 30, 2025.", "excerpt": "As of June 30, 2025, we have committed $32.1 billion for the construction of new buildings, building improvements, and leasehold improvements, primarily related to datacenters.", "page": 1, "section": "NOTE 6 — PROPERTY AND EQUIPMENT", "target_date": "2025-06-30", "numeric_target": "32.1", "unit": "billion USD", "attribution": "Microsoft Corporation", "uncertainties": [], "is_highlight": true}, {"category": "forecast", "summary": "The Activision Blizzard acquisition will accelerate growth in Microsoft's gaming business across mobile, PC, console, and cloud gaming.", "excerpt": "The acquisition will accelerate the growth in our gaming business across mobile, PC, console, and cloud gaming.", "page": 1, "section": "NOTE 7 — BUSINESS COMBINATIONS", "target_date": null, "numeric_target": null, "unit": null, "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "forecast", "summary": "Substantially all of the goodwill from the Activision Blizzard acquisition is expected to be non-deductible for income tax purposes.", "excerpt": "Substantially all of the goodwill is expected to be non-deductible for income tax purposes.", "page": 1, "section": "NOTE 7 — BUSINESS COMBINATIONS", "target_date": null, "numeric_target": null, "unit": null, "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "No material impairments of intangible assets were identified during fiscal years 2025, 2024, or 2023.", "excerpt": "No material impairments of intangible assets were identified during fiscal years 2025, 2024, or 2023.", "page": 1, "section": "Intangible Assets", "target_date": null, "numeric_target": null, "unit": null, "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "challenge", "summary": "IRS proposes additional tax payment of $28.9 billion plus penalties and interest for tax years 2004-2013.", "excerpt": "In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest.", "page": 1, "section": "Income Taxes – Uncertain Tax Positions", "target_date": null, "numeric_target": "28.9", "unit": "billion", "attribution": null, "uncertainties": ["potential penalties and interest"], "is_highlight": true}, {"category": "measurable_promise", "summary": "$57.3 billion remaining under the $60 billion share repurchase authorization as of June 30, 2025.", "excerpt": "As of June 30, 2025, $57.3 billion remained of this $60.0 billion share repurchase program.", "page": 1, "section": "Stockholders' Equity – Share Repurchases", "target_date": null, "numeric_target": "57.3", "unit": "billion", "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "forecast", "summary": "Expect to recognize ~40% of remaining performance obligation revenue within next 12 months.", "excerpt": "We expect to recognize approximately 40% of our total company remaining performance obligation revenue over the next 12 months and the remainder thereafter.", "page": 1, "section": "Unearned Revenue – Remaining Performance Obligations", "target_date": "2026-06-30", "numeric_target": "40", "unit": "percent", "attribution": null, "uncertainties": [], "is_highlight": true}, {"category": "reported_fact", "summary": "Interest cash payments were $1.6B in FY2025, $1.7B in FY2024 and FY2023.", "excerpt": "Cash paid for interest on our debt for fiscal years 2025, 2024, and 2023 was $1.6 billion, $1.7 billion, and $1.7 billion, respectively.", "page": 1, "section": "Debt – Interest Payments", "target_date": null, "numeric_target": "1.6", "unit": "billion", "attribution": null, "uncertainties": [], "is_highlight": true}], "gaps": ["MD&A section not present in the provided chunk.", "The provided chunk does not contain an MD&A (Management's Discussion and Analysis) section; it consists of financial statements and notes only.", "1 claims had unsupported quotations or page numbers and were rejected."], "extractedChunks": 4, "totalChunks": 4}, "fy2025/source": {"url": "https://www.microsoft.com/investor/reports/ar25/index.html", "sha256": "564154a15ac28c0f7f72f304ae26b74c29cfca9f3eafe8d59595776769d621ca", "retrieved_at": "2026-10-01T08:22:28.931Z", "pages": [{"page": 1, "text": "\n\n \n \n Microsoft 2025 Annual Report\n \n \n \n \n \n \n \n \n \n \n\n \n \n \n\n \n \n \n \n \n \n\n \n \n Microsoft\n \n Annual Report 2025\n \n \n \n \n \n \n \n \n\n \nAnnual Report 2025\n Continue to Shareholder Letter\n \n \n \n \n \n\n \n\n \n\n \nSatya Nadella\n \nChairman and Chief Executive Officer\n \n \n \n\n \n\n \nDear shareholders, colleagues, customers, and partners:\n \nFifty years after our founding, Microsoft is once again at the heart of a generational moment in technology as we find ourselves in the midst of the AI platform shift. More than any transformation before it, this generation of AI is radically changing every layer of the tech stack, and we are changing with it.\n \n \n \n \nAcross the company, we are accelerating our pace of innovation and adapting to both a new tech stack and a new way of working. We are delivering our current platforms at scale while building the next generation, always striving to create more value for our customers, our partners, and the world. \n \nStriking this balance is hard work, and few companies over the years have been able to do it. To succeed, we must continue to think in decades but execute in quarters, approaching each day with the humility and curiosity required to continuously improve, while being guided by our bold vision for the future. \n \nFinancially, it was a year of record performance. Revenue was $281.7 billion, up 15 percent. Operating income grew 17 percent to $128.5 billion. And Azure surpassed $75 billion in revenue for the first time, up 34 percent. These results reflect the growing demand for our platform and the trust customers are placing in us. We take neither for granted. \n \nWe must earn our permission to operate every day, in every country, every community, and every customer interaction. That’s why we remain grounded in our mission: to empower every person and every organization on the planet to achieve more.\n \nImagine a world where every person can get help from a researcher, a coder, or an analyst on demand. Not just information, but deep, contextual expertise paired with action. Or where every organization, no matter its size or sector, can reinvent employee experiences, reimagine customer engagement, reshape business processes, and bend the curve on innovation for their people, businesses, and industries. This is the new frontier and how we will unlock the next level of productivity and growth for the world. \n \nBut it is not some far off vision—we are already seeing what’s possible when AI reaches the frontlines of human potential, helping small businesses become more productive, multinationals more competitive, nonprofits more effective, governments more efficient, and improving healthcare and education outcomes. \n \nTo share just a few examples across industries: Mercy, one of the largest health systems in the US, has saved caregivers over 100,000 hours by automatically documenting physician-patient encounters. As one physician put it: “the best thing to happen to my practice in 10 years.” A grandmother in Japan, who lost her hearing at age two, can now communicate with her voice, thanks to an AI app. A judge in Colombia is using Copilot to expedite due process and help tackle a backlog of court cases. Barclays Bank is putting AI in the hands of 100,000 employees, transforming the employee experience by simplifying how they access information and get things done. Ralph Lauren is helping customers find the perfect look for any occasion, thanks to a new conversational shopping experience. Carvana has reduced inbound calls per sale by 45 percent, freeing its staff to focus on complex, high-value support. \n \nThese examples, and so many others like them, are made possible by our clear focus on our priorities, our responsibility, and our culture. \n \nOUR PRIORITIES\n \nTo deliver on our mission, we remain focused on three core business priorities as our North Star: security, quality, and AI innovation. \n \nSecurity and quality are non-negotiable. Our infrastructure and services are mission critical for the world. This year, we made significant progress across both our Secure Future Initiative (SFI) and Quality Excellence Initiative (QEI), but we recognize our work here is never done. We must continuously raise the bar for ourselves and our customers. \n \nSecurity\n \nThrough SFI, we have dedicated the equivalent of 34,000 full-time engineers to our highest-priority security work. We strengthened identity protections, secured our networks and systems, enhanced threat detection and response, and embedded secure-by-design practices across everything we build.\n \nQuality\n \nWith QEI, we created frameworks that increase accountability and accelerate progress against our engineering objectives to ensure we deliver durable, high quality-experiences at global scale. This includes improvements to change management, incident management, platform resiliency, and service health.\n \nTogether, these initiatives are laying the foundation for a renaissance of our engineering culture, where we build planet-scale systems that power the world, with the security and quality they require. \n \nAI innovation\n \nAt the same time, we have made major advances in AI innovation, including across two foundational areas: our Cloud and AI infrastructure, and our family of Copilots and agents.\n \nOur Cloud and AI infrastructure\n \nWe continue to lead the AI infrastructure wave. We opened new datacenters across six continents and now operate more than 400 datacenters in 70 regions, more than any other cloud provider. This year alone, we added over two gigawatts of new capacity. Every Azure region is now AI-first and can support liquid cooling, increasing the fungibility and the flexibility of our fleet. And just last month, we announced the world’s most powerful AI datacenter, Fairwater in southeastern Wisconsin, which will deliver 10x the performance of the world’s fastest supercomputer today.\n \nWe are also driving and benefiting from compounding improvements in silicon, systems, and models to improve performance and efficiency. And we continue to invest in sovereign cloud offerings to meet the unique data residency needs of governments and industries worldwide.\n \nWe have made meaningful progress on the next frontier in cloud systems: quantum. We announced Majorana-1, the first quantum chip with a topological core, and deployed the world’s first operational Level 2 quantum computer in partnership with Atom Computing.\n \nIn data and analytics, Microsoft Fabric is becoming the unified platform for the AI era. It is now our fastest-growing analytics product ever, with 25,000 paid customers. OneLake spans all databases and clouds, including Power BI semantic models, making it the best foundation for building enterprise AI applications.\n \nWe also introduced Azure AI Foundry, a platform to design, customize, and run powerful AI apps and agents. Foundry includes access to more than 11,000 models from partners like OpenAI, Cohere, DeepSeek, Meta, Mistral, xAI, and others, ensuring our customers can choose from the best frontier and open models in one place. Already, 80 percent of the Fortune 500 use Foundry for their AI workloads. \n \nAnd this fall we introduced our first in-house models: MAI-1 preview, our first foundation model trained end-to-end in-house, as well as MAI-Voice-1 for natural voice generation and MAI-Image-1 for image generation.\n \nCopilots and agents\n \nOur Copilot family of products is helping people thrive at home, at school, and at work. This year, we surpassed 100 million monthly active users across both commercial and consumer.\n \nWe rolled out a major update to Microsoft 365 Copilot this spring, bringing together chat, search, create, notebooks, and role-specific agents like Analyst and Researcher into a single experience. And earlier this month, we announced Agent Mode, which allows you to start with a simple prompt and then work iteratively with Copilot—steering it as it orchestrates multistep tasks to deliver high-quality Office documents, spreadsheets, and presentations. \n \nGive Copilot a prompt like, “Run a full analysis on this sales data set. I want to understand some important insights to help me make decisions about my business. Make it visual.” Agent Mode gets to work deciding which formulas to use, producing new sheets, and creating data visualizations. It’s pretty remarkable.\n \nCopilot Studio continues to grow as well, with more than 230,000 organizations using it to extend Microsoft 365 Copilot or to build their own agents using no-code/low-code tools.\n \nIn software development, GitHub Copilot now has more than 20 million users and has evolved into a peer programmer, capable of executing tasks on our behalf asynchronously. In healthcare, Dragon Copilot is being used to document millions of clinical encounters, saving precious time that healthcare providers can spend on patients, not paperwork. And in security, we were the first in the industry to introduce AI agents that help defenders autonomously manage high-volume security and IT tasks.\n \nOn the consumer front, Copilot is now integrated across Bing, Edge, GroupMe, MSN, Windows, and Xbox. We also refreshed our Copilot consumer app this year as a more natural, conversational, and personal AI companion. One highlight is Copilot Mode in Edge, which lets you chat directly with your open tabs. \n \nMore broadly, we continue to expand our reach with consumers. LinkedIn is now home to 1.2 billion members, and we are bringing AI agents into the core workflows of sales, hiring, and learning. And across gaming, we have 500 million monthly active users across platforms and devices.\n \nOUR RESPONSIBILITY \n \nAt Microsoft, we have always believed that we do well when the world around us does well. We demonstrate this, year after year, by making progress on our commitments to create technology that benefits everyone on the planet, along with the planet itself.\n \nThis means that as we drive the AI economy, we are also providing the skills and opportunities for everyone to participate in it. That’s why we launched Microsoft Elevate this year, an initiative that unites our technology, skills, research, and philanthropic investments, so AI can benefit every classroom, community, and cause. Over the next five years, we will invest $4 billion in cash and AI cloud technology to schools, community and technical colleges, and nonprofit organizations. And we will partner with organizations like UNICEF, Code.org, and more to extend AI skilling opportunities to people around the globe. \n \nOur skilling initiatives will help 20 million people earn AI credentials over the next two years, from foundational fluency to advanced technical training. And to support our work with deeper research and policy insights, our new AI Economy Institute will explore how AI is reshaping education and work, helping us bridge the gap between technological innovation and societal impact. \n \nWe are also focused on empowering teachers and students with the latest AI tools, making Microsoft 365 Copilot Personal free for 12 months for every college student in the United States. And we’re introducing new LinkedIn courses for teachers and students, enabling them to earn LinkedIn certifications that will help boost their resumes and open doors.\n \nAcross all of this, one thing is clear: People want technology they can trust. That’s why we are committed to driving responsible AI innovation and building safe and secure technology. As we do, we are guided by our values of respect, integrity, and accountability. They are built into the design of our software and services, the security of our data, our privacy protections, and our engagement with employees, customers, suppliers, communities, and governments around the world. \n \nAs a multinational company, we remain dedicated to creating jobs, promoting economic opportunities, and strengthening cybersecurity, digital stability, sovereignty, and resilience globally. In Europe, we announced five commitments to strengthen digital stability this year. They start with an expansion of our cloud and AI infrastructure, so every country can compete in the global economy. And they include a promise to uphold Europe’s digital resilience regardless of geopolitical and trade volatility. \n \nResponsible business practices are embedded across our operations and supply chain. Following the UN Guiding Principles on Business and Human Rights, we’ve strengthened our due diligence processes, expanded stakeholder engagement, and launched new governance mechanisms to ensure accountability. Our second annual Responsible AI Transparency Report highlighted our work to build and deploy AI responsibly. This includes developing new AI tools and resources to help our customers innovate within evolving regulatory requirements. \n \nAnother key component of earning trust is contributing to a safer online ecosystem, including protecting those who use our services from illegal and harmful content and conduct. We continue to take new steps to advance safety, especially for children, while balancing our commitments to free expression and privacy. Over the past year, we’ve focused on addressing risks related to abusive AI-generated content and partnered with StopNCII.org to detect victim-reported imagery in Bing. \n \nOur solutions, partnerships, and programs reach people and organizations of all abilities to help them thrive. More than 5 million people have participated in our AI Skilling programs focused on accessibility. We launched new technology to help people with disabilities play, work, and live—through an Adaptive Joystick for Xbox, sign language detection in Teams, low-vision keyboards for Surface, and AI-powered visual descriptions in Windows. \n \n2025 also marked the midpoint in our journey to become a carbon negative, water positive, zero waste company, and to protect more land than we use. We are on track to meet many of our targets and continue to accelerate progress for others.\n \nOur renewable energy procurement increased from 1.8 gigawatts in 2020 to 34 gigawatts in 2024, and we contracted nearly 30 million metric tons of carbon removal—playing a pivotal role in scaling the carbon removal market. We provided more than 1.5 million people with clean water and sanitation and plan to replenish more than 100 million cubic meters of water around the world. We are getting closer to zero waste through new Circular Centers, which contribute to the reuse and recycling of nearly 91 percent of servers and components decommissioned from our datacenters. And we’ve reached nearly 95 percent recyclability in our product packaging.\n \nWe are learning how to make AI more sustainable by design and improve AI-powered solutions. Platforms like our Planetary Computer and our AI for Good Lab are helping us find new ways to address the world’s most pressing challenges.\n \nMaking progress on these commitments takes time. But here, too—we are guided by a bold vision, thinking in decades and executing in quarters. \n \nOUR CULTURE\n \nAmid this rapid progress, our culture is more important than ever. The AI platform shift is reshaping not just our products and business models, but how we work.\n \nOur growth mindset is essential to our ability to continue leading this AI era. It enables us to innovate both within Microsoft and with those we serve. We must be learn-it-alls, willing to experiment, guided by evaluations, and committed to continuous improvement. I am continually impressed by how our people do just that. \n \nWe are focused on being Customer Zero, applying AI to reduce toil and improve flow in our own work while creating a playbook we can share with the world.\n \nWe’re also embracing a new way of working—one that expands job scopes, reduces handoffs, and gives teams tools to scale productivity in nonlinear ways. This isn’t just about driving efficiency. It’s about empowering our people to dream bigger and get to “job complete” faster, with less friction and greater impact than ever before.\n \nOur employees also continue to find ways to bring their purpose and passion to the causes and communities they care deeply about. This year, they volunteered over 1.2 million hours and gave $263 million (including company match) to 37,000 nonprofit organizations in 110 countries.\n \n**\n \nIn July, after we reported our earnings results—including surpassing $75 billion in annual Azure revenue for the first time—I shared a reflection with all employees. Fifteen years ago, when we set out on our cloud journey, we had a bold vision, and we persisted through all the ups and downs. \n \nI asked our team: What are you working on today that, 15 years from now, you will look back on and say, “we got it right”? Hundreds of answers poured in spanning near-term priorities and long-term ambitions alike:\n \n \n“Helping the world be safe from cybercrime”\n \n“Speech is now a standard human-machine interface”\n \n“Using AI to improve the lived experience for people with disabilities”\n \n“We changed the way people learn”\n \n“Access to millions of agents powered by orders of magnitude larger models”\n \n“Medical knowledge has become ambient, embedded in clinical workflows” \n \n“We helped billions become skilled in AI”\n \n \nThese responses and so many others reflected a deep sense of purpose and belief in what’s possible. And that is precisely what is needed for us to succeed.\n \n\n Microsoft has an immense opportunity and responsibility—not just in building these futures, but in helping shape the world’s future. And I’m confident that together, we can continue to think in decades and execute in quarters on this journey to empower us all.\n \n\n Satya Nadella\n\n Chairman and Chief Executive Officer\n\n October 15, 2025\n \n \n\n \n \n \n \n \nFinancial Review\n \nISSUER PURCHASES OF EQUITY SECURITIES, DIVIDENDS, AND STOCK PERFORMANCE\n \nMARKET AND STOCKHOLDERS\n \nOur common stock is traded on the NASDAQ Stock Market under the symbol MSFT. On July 24, 2025, there were 77,014 registered holders of record of our common stock.\n \nSHARE REPURCHASES AND DIVIDENDS\n \nShare Repurchases\n \nOn September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $60.0 billion in share repurchases. This share repurchase program commenced in November 2021 and was completed in April 2025.\n \nOn 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. As of June 30, 2025, $57.3 billion remained of this $60.0 billion share repurchase program.\n \nWe repurchased the following shares of common stock under the share repurchase programs:\n \n \n\n (In millions)\n Shares\n \n Amount\n \n Shares\n \n Amount\n \n Shares\n \n Amount\n \n \n\n Year Ended June 30,\n \n \n 2025\n \n \n \n 2024\n \n \n \n 2023\n \n \n\n First Quarter\n 7\n \n $ 2,800\n \n 11\n \n $ 3,560\n \n 17\n \n $ 4,600\n \n \n\n Second Quarter\n 8\n \n 3,500\n \n 7\n \n 2,800\n \n 20\n \n 4,600\n \n \n\n Third Quarter\n 8\n \n 3,500\n \n 7\n \n 2,800\n \n 18\n \n 4,600\n \n \n\n Fourth Quarter\n 8\n \n 3,200\n \n 7\n \n 2,800\n \n 14\n \n 4,600\n \n \n\n Total\n 31\n \n $ 13,000\n \n 32\n \n $ 11,960\n \n 69\n \n $ 18,400\n \n \n \nAll repurchases were made using cash resources. Shares repurchased during the fourth quarter of fiscal year 2025 were under the share repurchase programs approved on September 14, 2021 and September 16, 2024. All other shares repurchased were under the share repurchase program approved on September 14, 2021. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $5.4 billion, $5.3 billion, and $3.8 billion for fiscal years 2025, 2024, and 2023, respectively.\n \nDividends\n \nOur Board of Directors declared the following dividends:\n \n \n\n Declaration Date\n Record Date\n Payment Date\n \n \n Dividend\n\n Per Share\n \n \n \n Amount\n \n \n\n Fiscal Year 2025\n \n \n \n \n (In millions)\n \n \n\n September 16, 2024\n November 21, 2024\n December 12, 2024\n $ 0.83\n \n $ 6,170\n \n \n\n December 3, 2024\n February 20, 2025\n March 13, 2025\n 0.83\n \n 6,169\n \n \n\n March 11, 2025\n May 15, 2025\n June 12, 2025\n 0.83\n \n 6,169\n \n \n\n June 10, 2025\n August 21, 2025\n September 11, 2025\n 0.83\n \n 6,170\n \n \n\n Total\n \n \n $ 3.32\n \n $ 24,678\n \n \n\n Fiscal Year 2024\n \n \n \n \n \n \n \n\n September 19, 2023\n November 16, 2023\n December 14, 2023\n $ 0.75\n \n $ 5,574\n \n \n\n November 28, 2023\n February 15, 2024\n March 14, 2024\n 0.75\n \n 5,573\n \n \n\n March 12, 2024\n May 16, 2024\n June 13, 2024\n 0.75\n \n 5,574\n \n \n\n June 12, 2024\n August 15, 2024\n September 12, 2024\n 0.75\n \n 5,574\n \n \n\n Total\n \n \n $ 3.00\n \n $ 22,295\n \n \n \nThe dividend declared on June 10, 2025 was included in other current liabilities as of June 30, 2025.\n \nSTOCK PERFORMANCE\n \n\n COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*\n\n Among Microsoft Corporation, the S&P 500 Index and the NASDAQ Computer Index\n \n \n\n \n \n\n \n 6/20\n \n 6/21\n \n 6/22\n \n 6/23\n \n 6/24\n \n 6/25\n \n \n\n Microsoft Corporation\n 100.00\n \n 134.41\n \n 128.48\n \n 172.01\n \n 227.51\n \n 255.13\n \n \n\n S&P 500\n 100.00\n \n 140.79\n \n 125.85\n \n 150.51\n \n 187.47\n \n 215.89\n \n \n\n NASDAQ Computer\n 100.00\n \n 150.44\n \n 117.59\n \n 154.73\n \n 223.97\n \n 254.97\n \n \n \n \n$100 invested on 6/30/20 in stock or index, including reinvestment of dividends. Fiscal year ending June 30.\n \n \n \n \nBusiness\n \nNote About Forward-Looking Statements\n \nThis report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following sections: “Business”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures About Market Risk” in our fiscal year 2025 Form 10-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.\n \n \n \nGeneral\n \nMicrosoft is a technology company committed to making digital technology and artificial intelligence (“AI”) available broadly and doing so responsibly. Our mission is to empower every person and every organization on the planet to achieve more.\n \nWe 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. We strive to create opportunity, growth, and impact in every country around the world.\n \nAI 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.\n \nWe believe AI should be as empowering as it is powerful, and we’re committed to designing and deploying AI responsibly with safety and security from the outset.\n \nWhat We Offer\n \nFounded in 1975, we develop and support software, services, devices, and solutions that deliver new value for customers and help people and businesses realize their full potential.\n \nWe offer an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and we provide solution support and consulting services. We also deliver relevant online advertising to a global audience.\n \nOur products include operating systems, cross-device productivity and collaboration applications, server applications, business solution applications, desktop and server management tools, software development tools, and video games. We also design and sell devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.\n \nDigital transformation and adoption of AI continues to revolutionize more business workstreams for organizations in every sector across the globe. For enterprises, digital technology empowers employees, optimizes operations, engages customers, and in some cases, changes the very core of products and services.\n \nThe Microsoft Cloud provides integration across the technology stack while offering openness, improving time to value, reducing costs, and increasing agility. Our cloud business benefits from three economies of scale: datacenters that deploy computational resources at significantly lower cost per unit than smaller ones; datacenters that coordinate and aggregate diverse customer, geographic, and application demand patterns, improving the utilization of computing, storage, and network resources; and multi-tenancy locations that lower application maintenance labor costs.\n \nWe prioritize security above all else and we offer our customers integrated AI-driven products addressing security, compliance, identity, management, and privacy across customers’ multi-cloud, application, and device assets.\n \nThe Ambitions That Drive Us\n \nTo achieve our vision, our research and development efforts focus on three interconnected ambitions:\n \n \nReinvent productivity and business processes to help organizations and individuals work and collaborate more securely and efficiently.\n \nBuild the intelligent cloud and intelligent edge platform to provide a foundation for our customers’ digital workloads including hybrid consistency, developer productivity, data and AI capabilities, and trusted security and compliance.\n \nCreate more personal computing to enable users to interact with technology in more intuitive, engaging, and dynamic ways.\n \n \nOur Future Opportunity\n \nWe are focused on helping customers use the breadth and depth of the Microsoft Cloud to get the most value out of their digital spend while leading the AI platform wave across our solution areas. We continue to develop complete, intelligent solutions for our customers that empower people to be productive and collaborate, while safeguarding businesses and simplifying IT management. Our goal is to lead the industry in several distinct areas of technology over the long term, which we expect will translate to sustained growth. We are investing significant resources in:\n \n \nTransforming the workplace to deliver new, modern, modular business applications, drive deeper insights, and improve how people communicate, collaborate, learn, work, and interact with one another.\n \nBuilding and running cloud-based services in ways that utilize ubiquitous computing to unleash new experiences and opportunities for businesses and individuals.\n \nApplying AI and ambient intelligence to drive insights, revolutionize many types of work and business processes, and provide substantive productivity gains using Microsoft 365 Copilot and agents.\n \nProviding training on generative AI and greater access to digital learning and resources through skilling programs and initiatives, grants, and LinkedIn learning pathways.\n \nInventing new gaming experiences that bring people together around their shared love for games on any device and pushing the boundaries of innovation with console and PC gaming.\n \nLeveraging Windows to fuel our cloud business, grow our share of the PC market, and drive increased engagement with our services like Microsoft Edge, Bing, Copilot, Microsoft Teams, Microsoft 365 Consumer, Xbox Game Pass, and more.\n \nTackling security from all angles with our integrated, end-to-end solutions spanning security, compliance, identity, and management, across all clouds and platforms.\n \n \nOur future growth depends on our ability to transcend current product category definitions, business models, and sales motions.\n \nCommitment to Sustainability\n \nMicrosoft is committed to sustainability and our approach to addressing climate change starts with the sustainability of our own business. In 2020, we announced goals to become a carbon negative, water positive, and zero waste company by 2030. Since announcing these goals, we have made meaningful progress while having seen major changes in both the technology sector and in our understanding of what it will take to meet our goals. Progress toward these goals can be found in our annual Environmental Sustainability Report.\n \n \n \nOPERATING SEGMENTS\n \nWe 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.\n \nIn 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.\n \nAdditional 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.\n \nOur reportable segments are described below.\n \nProductivity and Business Processes\n \nOur 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:\n \n \nMicrosoft 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.\n \nMicrosoft 365 Consumer products and cloud services, including Microsoft 365 Consumer subscriptions, Office licensed on-premises, and other consumer services.\n \nLinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.\n \nDynamics 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.\n \n \nMicrosoft 365 Commercial Products and Cloud Services\n \nMicrosoft 365 Commercial is an AI-powered business and productivity solutions platform that brings together Office, Windows, Microsoft 365 Copilot, and Enterprise Mobility + Security to help organizations empower their employees. 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.\n \nMicrosoft 365 Consumer Products and Cloud Services\n \nMicrosoft 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.\n \nLinkedIn\n \nLinkedIn 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.\n \nDynamics Products and Cloud Services\n \nDynamics 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.\n \nCompetition\n \nCompetitors to Office include software and global application vendors, web-based and mobile application companies, AI-first application companies, as well as local application developers. We compete by providing secure, integrated industry-specific, and easy-to-use productivity and collaboration tools and services that create comprehensive solutions and work well with technologies our customers already have both on-premises or in the cloud.\n \nWindows faces competition from various software products and from alternative platforms and devices. Microsoft Defender for Endpoint competes with endpoint security solution providers.\n \nOur Enterprise Mobility + Security offerings compete with products from a range of competitors including identity vendors, security solution vendors, and numerous other security point solution vendors.\n \nLinkedIn faces competition from online professional networks; recruiting, talent management, and human resource services companies; job boards; companies that provide learning and development products and services; online and offline outlets that generate revenue from advertisers and marketers; and online and offline outlets for companies with lead generation and customer intelligence and insights.\n \nDynamics competes with cloud-based and on-premises business solution providers.\n \nIntelligent Cloud\n \nOur Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that power modern business and developers. This segment primarily comprises:\n \n \nServer products and cloud services, including Azure and other cloud services, comprising cloud and AI consumption-based services, GitHub cloud services, Nuance Healthcare cloud services, virtual desktop offerings, and other cloud services; and Server products, comprising SQL Server, Windows Server, Visual Studio, System Center, related Client Access Licenses (“CALs”), and other on-premises offerings.\n \nEnterprise and partner services, including Enterprise Support Services, Industry Solutions, Nuance professional services, Microsoft Partner Network, and Learning Experience.\n \n \nServer Products and Cloud Services\n \nAzure is a comprehensive set of cloud services that offer developers, IT professionals, and enterprises freedom to build, deploy, and manage applications on any platform or device. Customers can use Azure through our global network of datacenters for computing, networking, storage, mobile and web application services, AI, Internet of Things, cognitive services, and machine learning. Azure enables customers to devote more resources to development and use of applications that benefit their organizations, rather than managing on-premises hardware and software. Azure revenue is mainly affected by infrastructure-as-a-service and platform-as-a-service consumption-based services.\n \nAzure AI offerings provide a competitive advantage as companies seek ways to optimize and scale their business with AI. We offer supercomputing power for AI at scale to run large workloads, complemented by our rapidly expanding portfolio of AI cloud services (including the latest models) and hardware, which includes custom-built silicon and strong partnerships with chip manufacturers. Azure AI Foundry is a unified platform for developers to design, customize, and manage AI applications and agents.\n \nOur server products are designed to make IT professionals, developers, and their systems more productive and efficient. Server software is integrated server infrastructure and middleware designed to support software applications built on the Windows Server operating system. This includes the server platform, database, business intelligence, storage, management and operations, virtualization, service-oriented architecture platform, security, and identity software. We also license standalone and software development lifecycle tools for software architects, developers, testers, and project managers. Server products revenue is mainly affected by purchases through volume licensing programs, licenses sold to OEMs, and retail packaged products. CALs provide access rights to certain server products, including SQL Server and Windows Server, and revenue is reported along with the associated server product.\n \nGitHub and Nuance Healthcare include both cloud and on-premises offerings. GitHub provides a collaboration platform for developers to manage code and incorporate AI and agent-based tools across the software development lifecycle. Nuance Healthcare provides AI solutions to the healthcare industry.\n \nEnterprise and Partner Services\n \nEnterprise and partner services, including Enterprise Support Services, Industry Solutions, Nuance professional services, Microsoft Partner Network, and Learning Experience, assist customers in developing, deploying, and managing Microsoft server solutions, Microsoft desktop solutions, and Nuance conversational AI and ambient intelligent solutions, along with providing training and certification to developers and IT professionals on various Microsoft products.\n \nCompetition\n \nAzure faces diverse competition from cloud service providers and open source offerings. Azure’s competitive advantage includes enabling a hybrid cloud, allowing deployment of existing datacenters with our public cloud into a single, cohesive infrastructure, and the ability to run at a scale that meets the needs of businesses of all sizes and complexities. Our AI offerings compete with AI products from hyperscalers, as well as products from other emerging competitors and other open source offerings, many of which are also current or potential partners. Our Azure Security offerings include our cloud security solution and security information and event management solution, which compete with providers in the cybersecurity and cloud security space. We believe our cloud’s global scale, coupled with our broad portfolio of identity and security solutions, allows us to effectively solve complex cybersecurity challenges for our customers and differentiates us from the competition.\n \nOur server products face competition from a wide variety of server operating systems and applications offered by companies with a range of market approaches. Vertically integrated computer manufacturers offer their own versions of the Unix operating system preinstalled on server hardware and nearly all computer manufacturers offer server hardware for the Linux operating system.\n \nWe compete to provide enterprise-wide computing and point solutions with numerous commercial software vendors that offer solutions and middleware technology platforms, software applications for connectivity, security, hosting, database, and e-business servers.\n \nOur database, business intelligence, and data warehousing solutions offerings compete with products from providers in the data and analytics industry. Our system management solutions compete with server management and server virtualization platform providers. Our products for software developers compete against offerings from major technology providers, as well as open source alternatives.\n \nWe believe our server products provide customers with advantages in performance, total costs of ownership, and productivity by delivering superior applications, development tools, compatibility with a broad base of hardware and software applications, security, and manageability.\n \nOur Enterprise and partner services business competes with a wide range of companies that provide strategy and business planning, application development, and infrastructure services, including multinational consulting firms and small niche businesses focused on specific technologies.\n \nMore Personal Computing\n \nOur More Personal Computing segment consists of products and services that put customers at the center of the experience with our technology. This segment primarily comprises:\n \n \nWindows and Devices, including Windows OEM licensing (Windows Pro and non-Pro licenses sold through the OEM channel) and Devices, comprising Surface and PC accessories.\n \nGaming, including Xbox hardware and Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, and other cloud services.\n \nSearch and news advertising, comprising Bing and Copilot, Microsoft News, Microsoft Edge, and third-party affiliates.\n \n \nWindows and Devices\n \nThe Windows operating system is designed to deliver a more personal computing experience for users by enabling consistency of experience, applications, and information across their devices. Windows OEM revenue is impacted significantly by the number of Windows operating system licenses purchased by OEMs, which they pre-install on the devices they sell. In addition to computing device market volume, Windows OEM revenue is impacted by:\n \n \nThe mix of computing devices based on form factor and screen size.\n \nDifferences in device market demand between developed markets and growth markets.\n \nGrowth of the AI PC category.\n \nAttachment of Windows to devices shipped.\n \nCustomer mix between consumer, small and medium businesses, and large enterprises.\n \nChanges in inventory levels in the OEM channel.\n \nPricing changes and promotions, pricing variation that occurs when the mix of devices manufactured shifts from local and regional system builders to large multinational OEMs, and different pricing of Windows versions licensed.\n \nConstraints in the supply chain of device components.\n \nPiracy.\n \n \nWe design and sell devices, such as Surface (including Copilot+ PCs) and PC accessories. Our devices are designed to enable people and organizations to connect to the people and content that matter most using Windows and integrated Microsoft products and services. Surface is designed to help organizations, students, and consumers be more productive. Growth in Devices is dependent on total PC shipments, the ability to attract new customers, our product roadmap, and expanding into new categories.\n \nGaming\n \nMicrosoft is expanding how billions of people globally access and play video games on PC, console, mobile, and cloud. Our game content is developed through a collection of first-party studios creating iconic and differentiated gaming experiences. We continue to invest in 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 first- and third-party titles.\n \nThe gamer remains at the heart of the Xbox ecosystem. We are identifying new opportunities to attract gamers across a variety of different end points through our first- and third-party content and business diversification across subscriptions, ads, and digital stores. We’ve seen new devices from third-party manufacturers along with key PC and mobile end points that help us empower gamers to play in a way that is most convenient to them. We are focused on growing the platform and expanding to new ecosystems to engage as many gamers as possible.\n \nXbox enables people to connect and share online gaming experiences that are accessible on Xbox consoles, Windows-enabled devices, and other devices. Xbox is designed to benefit users by providing access to a network of certified applications and services and to benefit our developer and partner ecosystems by providing access to a large customer base. Xbox revenue is mainly affected by subscriptions and sales of first- and third-party content, as well as advertising. Growth of our Gaming business is determined by the overall active user base through Xbox enabled content, availability of games, providing exclusive game content that gamers seek, the computational power and reliability of the devices used to access our content and services, and the ability to create new experiences.\n \nSearch and News Advertising\n \nOur Search and news advertising business is designed to deliver relevant search, native, and display advertising to a global audience. Microsoft Copilot is a digital companion designed to inform, entertain, and inspire. Our Microsoft Edge browser and Bing search engine with Copilot are key tools to enable user acquisition and engagement, while our technology platform enables accelerated delivery of digital advertising solutions. In addition to first-party tools, we have several partnerships with companies through which we provide and monetize search offerings. Growth depends on our ability to attract new users, understand intent, and match intent with relevant content on advertising offerings.\n \nCompetition\n \nWindows faces competition from various software products and from alternative platforms and devices. We believe Windows competes effectively by giving customers choice, value, flexibility, security, an easy-to-use interface, and compatibility with a broad range of hardware and software applications, including those that enable productivity.\n \nDevices face competition from various computer, tablet, and hardware manufacturers who offer a unique combination of high-quality industrial design and innovative technologies across various price points. Many of these manufacturers are also current or potential partners and customers, including our Windows OEMs.\n \nXbox and our cloud gaming services face competition from various online gaming ecosystems and game streaming services. We also compete with other providers of entertainment services such as video streaming platforms. Our gaming platform competes with other console platforms. We believe our gaming platform is effectively positioned against, and uniquely differentiated from, competitive products and services based on significant innovation in hardware architecture, user interface, developer tools, online gaming and entertainment services, and continued strong content from our own first-party game franchises as well as other digital content offerings.\n \nOur Search and news advertising business competes with search engines, and a wide array of websites, social platforms, and portals that provide content and online offerings to end users.\n \n \n \nHUMAN CAPITAL RESOURCES\n \nAs of June 30, 2025, we employed approximately 228,000 people on a full-time basis, 125,000 in the U.S. and 103,000 internationally. Of the total employees, 89,000 were in operations, including product support and consulting services, datacenter operations, and manufacturing and distribution; 80,000 were in product research and development; 44,000 were in sales and marketing; and 15,000 were in general and administration. Certain employees are subject to collective bargaining agreements.\n \nWe design our programs to attract, reward, and retain top talent while fostering continuous employee development and reinforcing our organizational culture and values. Our total compensation offering is both highly differentiated and competitive within the market, and we also monitor pay equity across multiple dimensions. We have invested significantly in employee wellbeing and offer a differentiated benefits package which includes many physical, emotional, and financial wellness programs. We also provide access to continuous learning through a wide range of internal and external content, supporting professional growth across roles and disciplines. Through our employee listening systems, we gather direct feedback from our workforce, enabling us to adapt our programs and address employee needs globally with real-time insights. Additionally, our culture prioritizes the security of both our customers and Microsoft, embedding this responsibility across all teams and functions.\n \n \n \nOPERATIONS\n \nWe have regional operations service centers in the Americas, Asia Pacific, Europe, and the Middle East that support our business operations, including customer contract and order processing, billing, credit and collections, customer lifecycle AI and cloud operations, and vendor management and logistics.\n \nIn addition to our operations centers, we also operate datacenters throughout each of these regions. We continue to align our datacenter locations and server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services. Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units (“GPUs”) and other components.\n \nWe 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.\n \nThere are few qualified suppliers for certain components of our servers and devices. Extended or unforeseen disruptions at these suppliers could impact our ability to operate our datacenters and manufacture devices on time to meet consumer demand.\n \n \n \nRESEARCH AND DEVELOPMENT\n \nProduct and Service Development\n \nOur success is based on our ability to create new and compelling products, services, and experiences for our users, initiate and embrace disruptive technology trends, enter new geographic and product markets, and drive broad adoption of our products and services. We make significant investments in research and development for new and existing products, services, and technologies, including tools and platforms spanning digital work and life experiences, cloud computing, AI, devices, security, and operating systems.\n \nWe 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. It also gives us the freedom to decide which modifications and enhancements are most important and when they should be implemented. We strive to obtain information as early as possible about changing usage patterns and hardware advances that may affect software and hardware design. Before releasing new software platforms, and as we make significant modifications to existing platforms, we provide application vendors with a range of resources and guidelines for development, training, and testing.\n \nWe plan to continue to make significant investments in a broad range of product research and development activities, and as appropriate, we will coordinate our research and development across operating segments and leverage the results across the company. This includes continuing to support fundamental research, which provides us with a unique perspective on future trends and contributes to our innovation.\n \nIntellectual Property\n \nWe protect our intellectual property investments in a variety of ways. We work actively in the U.S. and internationally to ensure the enforcement of copyright, patent, trademark, trade secret, and other protections that apply to our software and hardware products, services, business plans, and branding. While we employ much of our internally-developed intellectual property in our products and services, we also engage in outbound licensing of specific patented technologies that are incorporated into licensees’ products. From time to time, we enter into broader cross-license agreements with other technology companies covering entire groups of patents. We may also purchase or license technology that we incorporate into our products and services. At times, we make select intellectual property broadly available at no or low cost to achieve a strategic objective, such as promoting industry standards, advancing interoperability, supporting societal and/or environmental efforts, or attracting and enabling our external development community. Our engagement with open source software also causes us to license our intellectual property rights broadly in certain situations.\n \nWhile it may be necessary in the future to seek or renew licenses relating to various aspects of our products and services, we believe, based upon past experience and industry practice, such licenses generally can be obtained on commercially reasonable terms. We believe our continuing research and product development are not materially dependent on any single license or other agreement with a third-party relating to the development of our products.\n \n \n \nDISTRIBUTION, SALES, AND MARKETING\n \nOur customers include individual consumers, small and medium organizations, large global enterprises, public-sector institutions, service providers, application developers, and OEMs. We market and distribute our products and services through the following channels: direct, distributors and 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; 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 services; and managing OEM relationships.\n \nDirect\n \nMany organizations that license our products and services transact directly with us through Enterprise Agreements and Enterprise Services contracts, with sales support from system integrators, independent software vendors, web agencies, and partners that advise organizations on licensing our products and services (“Enterprise Agreement Software Advisors” or “ESA”). Microsoft offers direct sales programs targeted to reach small, medium, and corporate customers, in addition to those offered through the reseller channel. A large network of partner advisors support many of these sales.\n \nWe also sell commercial and consumer products and services directly to customers, such as cloud services, search, and gaming, through our digital marketplaces and online stores. Additionally, our Microsoft Experience Centers are designed to facilitate deeper engagement with our partners and customers across industries.\n \nDistributors and Resellers\n \nOrganizations also license our products and services indirectly, primarily through licensing solution partners (“LSP”), distributors, value-added resellers (“VAR”), and retailers. Although each type of reselling partner may reach organizations of all sizes, LSPs are primarily engaged with large organizations, distributors resell primarily to VARs, and VARs typically reach small and medium organizations. ESAs are also typically authorized as LSPs and operate as resellers for our other volume licensing programs. Microsoft Cloud Solution Provider is our main partner program for reselling cloud services.\n \nWe distribute our retail packaged products primarily through independent non-exclusive distributors, authorized replicators, resellers, and retail outlets. Individual consumers obtain these products primarily through retail outlets. We distribute our devices through third-party retailers. We have a network of field sales representatives and field support personnel that solicit orders from distributors and resellers and provide product training and sales support.\n \nOur Dynamics business solutions are also licensed to enterprises through a global network of channel partners providing vertical solutions and specialized services.\n \nOEMs\n \nWe distribute our products and services through OEMs that pre-install our software on new devices and servers they sell. The largest component of the OEM business is the Windows operating system pre-installed on devices. OEMs also sell devices pre-installed with other Microsoft products and services, including applications such as Office and the capability to subscribe to Microsoft 365 Consumer.\n \nThere are two broad categories of OEMs. The largest category of OEMs are direct OEMs as our relationship with them is managed through a direct agreement between Microsoft and the OEM. We have distribution agreements covering one or more of our products with virtually all the multinational OEMs, including Dell, Hewlett-Packard, Lenovo, and with many regional and local OEMs. The second broad category of OEMs are system builders consisting of lower-volume PC manufacturers, which source Microsoft software for pre-installation and local redistribution primarily through the Microsoft distributor channel rather than through a direct agreement or relationship with Microsoft.\n \n \n \nLICENSING OPTIONS\n \nWe offer options for organizations of varying sizes that want to purchase our cloud services and on-premises software. We license these organizations under volume licensing agreements to allow the customer to acquire multiple licenses of products and services instead of having to acquire separate licenses through retail channels. These volume licensing programs have varying programmatic requirements and benefits to best meet the needs of our customers.\n \nSoftware Assurance (“SA”) conveys rights to new software and upgrades for perpetual licenses released over the contract period. It also provides support, tools, training, and other licensing benefits to help customers deploy and use software efficiently. SA is required to be purchased with certain volume licensing agreements and is an optional purchase with others.\n \nVolume Licensing Programs\n \nEnterprise Agreement\n \nEnterprise Agreements offer large organizations a manageable volume licensing program that gives them the flexibility to buy cloud services and software licenses under one agreement. Enterprise Agreements are designed for medium or large organizations that want to license Microsoft products and services organization-wide over a three-year period. Organizations can elect to purchase perpetual licenses (covered with SA) and/or subscribe to cloud services.\n \nMicrosoft Customer Agreement\n \nMicrosoft Customer Agreements are simplified purchase agreements presented, accepted, and stored through a digital experience. Microsoft Customer Agreements are non-expiring agreements that are designed to support all customers over time, whether purchasing through a partner or directly from Microsoft.\n \nMicrosoft Online Subscription Agreement\n \nMicrosoft Online Subscription Agreements are designed for small and medium organizations that want to subscribe to, activate, provision, and maintain cloud services seamlessly and directly via the web. These agreements allow customers to acquire monthly or annual subscriptions for cloud-based services.\n \nMicrosoft Products and Services Agreement\n \nMicrosoft Products and Services Agreements are designed for medium and large organizations that want to license cloud services and on-premises software as needed, with no organization-wide commitment, under a single, non-expiring agreement. Organizations purchase perpetual licenses or subscribe to licenses. SA is optional for customers that purchase perpetual licenses.\n \nOpen Value\n \nOpen Value agreements are a simple, cost-effective way to acquire the latest Microsoft technology. These agreements are designed for small and medium organizations that want to license cloud services and on-premises software over a three-year period. Under Open Value agreements, organizations can elect to purchase perpetual licenses or subscribe to licenses and SA is included.\n \nSelect Plus\n \nA Select Plus agreement is designed for government and academic organizations to acquire on-premises licenses at any affiliate or department level, while realizing advantages as one organization. Organizations purchase perpetual licenses and SA is optional.\n \nPartner Programs\n \nThe Microsoft Cloud Solution Provider Program offers customers an easy way to license the cloud services they need in combination with the value-added services offered by their systems integrator, managed services provider, or cloud reseller partner. Partners in this program can easily package their own products and services to directly provision, manage, and support their customer subscriptions.\n \nThe Microsoft Services Provider License Agreement allows hosting service providers and independent software vendors who want to license eligible Microsoft software products to provide hosted applications and software services to their end customers. Partners license software over a three-year period and are billed monthly based on units licensed.\n \nThe Independent Software Vendor Royalty Program enables partners to integrate Microsoft products into other applications and then license the unified business solution to their end users.\n \n \n \nGOVERNMENT REGULATION\n \nWe 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, advertising, and online content. 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. 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 the programs and processes. While we have a unified approach to regulatory compliance, some of the programs and processes 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.\n \nFor a description of the risks we face related to regulatory matters, refer to Risk Factors in our fiscal year 2025 Form 10K.\n \n \n \nAVAILABLE INFORMATION\n \nOur Internet address is www.microsoft.com. At our Investor Relations website, www.microsoft.com/investor, we make available free of charge a variety of information for investors. Our goal is to maintain the Investor Relations website as a portal through which investors can easily find or navigate to pertinent information about us, including:\n \n \nOur annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the Securities and Exchange Commission (“SEC”) at www.sec.gov.\n \nInformation on our business strategies, financial results, and metrics for investors.\n \nAnnouncements of investor conferences, speeches, and events at which our executives talk about our product, service, and competitive strategies. Archives of these events are also available.\n \nPress releases on quarterly earnings, product and service announcements, legal developments, and international news.\n \nCorporate governance information including our articles of incorporation, bylaws, governance guidelines, committee charters, codes of conduct and ethics, global corporate social responsibility initiatives, and other governance-related policies.\n \nOther news and announcements that we may post from time to time that investors might find useful or interesting.\n \nOpportunities to sign up for email alerts to have information pushed in real time.\n \n \nWe 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 responsible AI, sustainability, responsible sourcing, accessibility, digital trust, and public policy engagement.\n \nThe information found on these websites is not part of, or incorporated by reference into, this or any other report we file with, or furnish to, the SEC. In addition to these channels, we use social media to communicate to the public. It is possible that the information we post on social media could be deemed to be material to investors. We encourage investors, the media, and others interested in Microsoft to review the information we post on the social media channels listed on our Investor Relations website.\n \n \n \nDiscussion & Analysis\n \nMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n \nThe following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Microsoft Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements. This section generally discusses the results of our operations for the year ended June 30, 2025 compared to the year ended June 30, 2024. For a discussion of the year ended June 30, 2024 compared to the year ended June 30, 2023, please refer to “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, 2024 and our Form 8-K filed on December 3, 2024.\n \nOVERVIEW\n \nMicrosoft is a technology company committed to making digital technology and artificial intelligence (“AI”) available broadly and doing so responsibly, with a mission to empower every person and every organization on the planet to achieve more. We create platforms and tools, powered by AI, that deliver innovative solutions that meet the evolving needs of our customers.\n \nWe generate revenue by offering a wide range of cloud-based solutions, content, and other services to people and businesses; licensing and supporting an array of software products; delivering relevant online advertising to a global audience; and designing and selling devices. Our most significant expenses are related to compensating employees; supporting and investing in our cloud-based services, including datacenter operations; designing, manufacturing, marketing, and selling our other products and services; and income taxes.\n \nHighlights from fiscal year 2025 compared with fiscal year 2024 included:\n \n \nMicrosoft Cloud revenue increased 23% to $168.9 billion.\n \nMicrosoft 365 Commercial products and cloud services revenue increased 14% driven by Microsoft 365 Commercial cloud revenue growth of 15%.\n \nMicrosoft 365 Consumer products and cloud services revenue increased 11% driven by Microsoft 365 Consumer cloud revenue growth of 11%.\n \nLinkedIn revenue increased 9%.\n \nDynamics products and cloud services revenue increased 15% driven by Dynamics 365 revenue growth of 19%.\n \nServer products and cloud services revenue increased 23% driven by Azure and other cloud services revenue growth of 34%.\n \nWindows OEM and Devices revenue increased 3%.\n \nXbox content and services revenue increased 16%.\n \nSearch and news advertising revenue excluding traffic acquisition costs increased 20%.\n \n \nIndustry Trends and Opportunities\n \nOur industry is dynamic and highly competitive, with frequent changes in both technologies and business models. Each industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the industry and our business. At Microsoft, we push the boundaries of what is possible through a broad range of research and development activities that seek to identify and address the changing demands of customers and users, industry trends, and competitive forces.\n \nMicrosoft 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.\n \nEconomic Conditions, Challenges, and Risks\n \nThe markets for software, devices, and cloud-based services are dynamic and highly competitive. Our competitors are developing new software and devices, while also deploying competing cloud-based services for consumers and businesses. The devices and form factors customers prefer evolve rapidly, influencing how users access services in the cloud and, in some cases, the user’s choice of which suite of cloud-based services to use. Aggregate demand for our software, services, and devices is also correlated to global macroeconomic and geopolitical factors, which remain dynamic. We must continue to evolve and adapt over an extended time in pace with this changing environment.\n \nThe investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and may decrease our operating margins. We continue to identify and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services. Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units (“GPUs”) and other components. Our devices are primarily manufactured by third-party contract manufacturers. For the majority of our products, we have the ability to use other manufacturers if a current vendor becomes unavailable or unable to meet our requirements. However, some of our products contain certain components for which there are very few qualified suppliers. Extended disruptions at these suppliers could impact our ability to manufacture devices on time to meet consumer demand.\n \nOur success is highly dependent on our ability to attract and retain qualified employees. We hire a mix of university and industry talent worldwide. We compete for talented individuals globally by offering an exceptional working environment, broad customer reach, scale in resources, the ability to grow one’s career across many different products and businesses, and competitive compensation and benefits.\n \nOur international operations provide a significant portion of our total revenue and expenses. Many of these revenue and expenses are denominated in currencies other than the U.S. dollar. As a result, changes in foreign exchange rates may significantly affect revenue and expenses. 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 2025.\n \nFurther, 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.\n \nRefer to Risk Factors in our fiscal year 2025 Form 10-K for a discussion of these factors and other risks.\n \nSeasonality\n \nOur revenue fluctuates quarterly and is generally higher in the fourth quarter of our fiscal year. Fourth quarter revenue is driven by a higher volume of multi-year contracts executed during the period.\n \nReportable Segments\n \nWe report our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The segment amounts included in MD&A are presented on a basis consistent with our internal management reporting.\n \nIn 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.\n \nAdditional information on our reportable segments is contained in Note 18 – Segment Information and Geographic Data of the Notes to Financial Statements.\n \nMetrics\n \nWe use metrics in assessing the performance of our business and to make informed decisions regarding the allocation of resources. We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into performance trends, and reflect the continued evolution of our products and services. Our commercial and other business metrics are fundamentally connected based on how customers use our products and services. The metrics are disclosed in the MD&A or the Notes to Financial Statements. Financial metrics are calculated based on financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and growth comparisons relate to the corresponding period of last fiscal year.\n \nIn 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.\n \nCommercial\n \nOur commercial business primarily consists of Server products and cloud services, Microsoft 365 Commercial products and cloud services, the commercial portion of LinkedIn, Dynamics products and cloud services, and Enterprise and partner services. Our commercial metrics allow management and investors to assess the overall health of our commercial business and include leading indicators of future performance.\n \n \n\n \nCommercial remaining performance obligation\n \nCommercial portion of revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods\n \n \n\n \nMicrosoft Cloud revenue and revenue growth\n \nRevenue from Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365\n \n \n\n \nMicrosoft Cloud gross margin percentage\n \nGross margin percentage for our Microsoft Cloud business\n \n \n \nProductivity and Business Processes and Intelligent Cloud\n \nMetrics related to our Productivity and Business Processes and Intelligent Cloud segments assess the health of our core businesses within these segments. The metrics primarily reflect growth across our cloud services.\n \n \n\n \nMicrosoft 365 Commercial cloud revenue growth\n \nRevenue from Microsoft 365 Commercial subscriptions, 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\n \n \n\n \nMicrosoft 365 Commercial seat growth\n \nThe number of Microsoft 365 Commercial seats at end of period where seats are paid users covered by a Microsoft 365 Commercial subscription\n \n \n\n \nMicrosoft 365 Consumer cloud revenue growth\n \nRevenue from Microsoft 365 Consumer subscriptions and other consumer services\n \n \n\n \nMicrosoft 365 Consumer subscribers\n \nThe number of Microsoft 365 Consumer subscribers at end of period\n \n \n\n \nLinkedIn revenue growth\n \nRevenue from LinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions\n \n \n\n \nDynamics 365 revenue growth\n \nRevenue from Dynamics 365, including a set of intelligent, cloud-based applications across ERP, CRM, Power Apps, and Power Automate\n \n \n\n \nAzure and other cloud services revenue growth\n \nRevenue from Azure and other cloud services, including cloud and AI consumption-based services, GitHub cloud services, Nuance Healthcare cloud services, virtual desktop offerings, and other cloud services\n \n \n \nMore Personal Computing\n \nMetrics related to our More Personal Computing segment assess the performance of our key consumer businesses.\n \n \n\n \nWindows OEM and Devices revenue growth\n \nRevenue from sales of Windows Pro and non-Pro licenses sold through the OEM channel and sales of first-party Devices, including Surface and PC accessories\n \n \n\n \nXbox content and services revenue growth\n \nRevenue from Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, and other cloud services\n \n \n\n \nSearch and news advertising revenue (ex TAC) growth\n \nRevenue from search and news advertising excluding traffic acquisition costs (“TAC”) paid to Bing Ads network publishers and news partners\n \n \n \nSUMMARY RESULTS OF OPERATIONS\n \n \n\n (In millions, except percentages and per share amounts)\n 2025\n 2024\n \n \n Percentage\n\n Change\n \n \n \n \n\n Revenue\n $ 281,724\n $ 245,122\n 15%\n \n \n\n Gross margin\n 193,893\n 171,008\n 13%\n \n \n\n Operating income\n 128,528\n 109,433\n 17%\n \n \n\n Net income\n 101,832\n 88,136\n 16%\n \n \n\n Diluted earnings per share\n 13.64\n 11.80\n 16%\n \n \n \nFiscal Year 2025 Compared with Fiscal Year 2024\n \nRevenue increased $36.6 billion or 15% with growth across each of our segments. Intelligent Cloud revenue increased driven by Azure. Productivity and Business Processes revenue increased driven by Microsoft 365 Commercial cloud. More Personal Computing revenue increased driven by Gaming and Search and news advertising.\n \nCost of revenue increased $13.7 billion or 19% driven by growth in Microsoft Cloud.\n \nGross margin increased $22.9 billion or 13% with growth across each of our segments.\n \n \nGross margin percentage decreased slightly driven by Intelligent Cloud, offset in part by More Personal Computing.\n \nMicrosoft Cloud gross margin percentage decreased to 69% driven by the impact of scaling our AI infrastructure, offset in part by efficiency gains in Azure.\n \n \nOperating expenses increased $3.8 billion or 6% driven by investments in cloud and AI engineering and Gaming, including the impact of the Activision Blizzard acquisition.\n \nOperating income increased $19.1 billion or 17% with growth across each of our segments.\n \nSEGMENT RESULTS OF OPERATIONS\n \n \n\n (In millions, except percentages)\n 2025\n \n 2024\n \n \n Percentage\n\n Change\n \n \n \n \n\n Productivity and Business Processes\n \n \n \n \n \n \n\n Revenue\n $ 120,810\n \n $ 106,820\n 13%\n \n \n\n Cost of revenue\n 22,422\n \n 19,611\n 14%\n \n \n\n Operating expenses\n 28,615\n \n 27,548\n 4%\n \n \n\n Operating Income\n $ 69,773\n \n $ 59,661\n 17%\n \n \n\n Intelligent Cloud\n \n \n \n \n \n \n\n Revenue\n $ 106,265\n \n $ 87,464\n 21%\n \n \n\n Cost of revenue\n 40,171\n \n 29,611\n 36%\n \n \n\n Operating expenses\n 21,505\n \n 20,040\n 7%\n \n \n\n Operating Income\n $ 44,589\n \n $ 37,813\n 18%\n \n \n\n More Personal Computing\n \n \n \n \n \n \n\n Revenue\n $ 54,649\n \n $ 50,838\n 7%\n \n \n\n Cost of revenue\n 25,238\n \n 24,892\n 1%\n \n \n\n Operating expenses\n 15,245\n \n 13,987\n 9%\n \n \n\n Operating Income\n $ 14,166\n \n $ 11,959\n 18%\n \n \n\n Total\n \n \n \n \n \n \n\n Revenue\n $ 281,724\n \n $ 245,122\n 15%\n \n \n\n Cost of revenue\n 87,831\n \n 74,114\n 19%\n \n \n\n Operating expenses\n 65,365\n \n 61,575\n 6%\n \n \n\n Operating Income\n $ 128,528\n \n $ 109,433\n 17%\n \n \n \nReportable Segments\n \nFiscal Year 2025 Compared with Fiscal Year 2024\n \nProductivity and Business Processes\n \nRevenue increased $14.0 billion or 13%.\n \n \nMicrosoft 365 Commercial products and cloud services revenue increased $10.8 billion or 14%. Microsoft 365 Commercial cloud revenue grew 15% with Microsoft 365 Commercial seat growth of 6% driven by small and medium businesses and frontline worker offerings, as well as growth in revenue per user. 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.\n \nMicrosoft 365 Consumer products and cloud services revenue increased $756 million or 11%. 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.\n \nLinkedIn revenue increased $1.4 billion or 9% with growth across all lines of business.\n \nDynamics 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. Dynamics 365 revenue grew 19% with growth across all workloads.\n \n \nOperating income increased $10.1 billion or 17%.\n \n \nCost of revenue increased $2.8 billion or 14% driven by growth in Microsoft 365 Commercial cloud.\n \nGross margin increased $11.2 billion or 13% driven by growth in Microsoft 365 Commercial cloud. Gross margin percentage decreased slightly primarily driven by the impact of scaling our AI infrastructure, offset in part by efficiency gains in Microsoft 365 Commercial cloud.\n \nOperating expenses increased $1.1 billion or 4% driven by investments in cloud and AI engineering and commercial sales.\n \n \nIntelligent Cloud\n \nRevenue increased $18.8 billion or 21%.\n \n \nServer products and cloud services revenue increased $18.6 billion or 23% driven by Azure and other cloud services. Azure and other cloud services revenue grew 34% driven by demand for our portfolio of services. Server products revenue decreased 3% driven by a decrease in transactional purchasing with continued customer shift to cloud offerings.\n \nEnterprise and partner services revenue increased $166 million or 2% driven by growth in Enterprise Support Services, offset in part by a decline in Industry Solutions.\n \n \nOperating income increased $6.8 billion or 18%.\n \n \nCost of revenue increased $10.6 billion or 36% driven by growth in Azure.\n \nGross margin increased $8.2 billion or 14% driven by growth in Azure. Gross margin percentage decreased driven by the impact of scaling our AI infrastructure, offset in part by efficiency gains in Azure.\n \nOperating expenses increased $1.5 billion or 7% driven by investments in cloud and AI engineering.\n \n \nMore Personal Computing\n \nRevenue increased $3.8 billion or 7%.\n \n \nWindows and Devices revenue increased $288 million or 2%. Windows OEM and Devices revenue increased 3% driven by growth in Windows OEM, offset in part by a decline in Devices.\n \nGaming revenue increased $2.0 billion or 9% driven by growth in Xbox content and services, offset in part by a decline in Xbox hardware. Xbox content and services revenue increased 16% driven by the impact of the Activision Blizzard acquisition and Xbox Game Pass. Xbox hardware revenue decreased 25% driven by lower volume of consoles sold.\n \nSearch and news advertising revenue increased $1.6 billion or 13%. Search and news advertising revenue excluding traffic acquisition costs increased 20% driven by higher search volume and higher revenue per search.\n \n \nOperating income increased $2.2 billion or 18%.\n \n \nCost of revenue increased $346 million or 1% driven by growth in Search and news advertising.\n \nGross margin increased $3.5 billion or 13% with growth across all businesses. Gross margin percentage increased with improvement across all businesses.\n \nOperating expenses increased $1.3 billion or 9% driven by Gaming, including the impact of the Activision Blizzard acquisition.\n \n \nOPERATING EXPENSES\n \nResearch and Development\n \n \n\n (In millions, except percentages)\n 2025\n 2024\n \n \n Percentage\n\n Change\n \n \n \n \n\n Research and development\n $ 32,488\n $ 29,510\n 10%\n \n \n\n As a percent of revenue\n 12%\n 12%\n 0ppt\n \n \n \nResearch and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include technology development costs, including AI training and other infrastructure costs, third-party development and programming costs, and the amortization of purchased software code and services content.\n \nFiscal Year 2025 Compared with Fiscal Year 2024\n \nResearch and development expenses increased $3.0 billion or 10% driven by investments in cloud and AI engineering and Gaming, including the impact of the Activision Blizzard acquisition.\n \nSales and Marketing\n \n \n\n (In millions, except percentages)\n 2025\n 2024\n \n \n Percentage\n\n Change\n \n \n \n \n\n Sales and marketing\n $ 25,654\n $ 24,456\n 5%\n \n \n\n As a percent of revenue\n 9%\n 10%\n (1)ppt\n \n \n \nSales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs.\n \nFiscal Year 2025 Compared with Fiscal Year 2024\n \nSales and marketing expenses increased $1.2 billion or 5% driven by investments in commercial sales and Gaming, including the impact of the Activision Blizzard acquisition.\n \nGeneral and Administrative\n \n \n\n (In millions, except percentages)\n 2025\n 2024\n \n \n Percentage\n\n Change\n \n \n \n \n\n General and administrative\n $ 7,223\n $ 7,609\n (5)%\n \n \n\n As a percent of revenue\n 3%\n 3%\n 0ppt\n \n \n \nGeneral and administrative expenses include payroll, employee benefits, stock-based compensation expense, employee severance expense incurred as part of a corporate program, and other headcount-related expenses associated with finance, legal, facilities, certain human resources and other administrative personnel, certain taxes, and legal and other administrative fees.\n \nFiscal Year 2025 Compared with Fiscal Year 2024\n \nGeneral and administrative expenses decreased $386 million or 5% driven by Gaming, including the impact of the Activision Blizzard acquisition.\n \nOTHER INCOME (EXPENSE), NET\n \nThe components of other income (expense), net were as follows:\n \n \n\n (In millions)\n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n \n\n Interest and dividends income\n $ 2,647\n \n $ 3,157\n \n \n\n Interest expense\n (2,385)\n \n (2,935)\n \n \n\n Net recognized losses on investments\n (349)\n \n (118)\n \n \n\n Net losses on derivatives\n (260)\n \n (187)\n \n \n\n Net gains (losses) on foreign currency remeasurements\n 171\n \n (244)\n \n \n\n Other, net\n (4,725)\n \n (1,319)\n \n \n\n Total\n $ (4,901)\n \n $ (1,646)\n \n \n \nWe use derivative instruments to manage risks related to foreign currencies, interest rates, equity prices, and credit; to enhance investment returns; and to facilitate portfolio diversification. Gains and losses from changes in fair values of derivatives that are not designated as hedging instruments are primarily recognized in other income (expense), net.\n \nFiscal Year 2025 Compared with Fiscal Year 2024\n \nInterest and dividends income decreased primarily due to lower portfolio balances. Interest expense decreased primarily due to maturities of commercial paper and higher capitalization of debt interest expense, offset in part by higher finance lease interest expense. Net recognized losses on investments increased primarily due to higher impairments, offset in part by higher gains on equity investments in the current period. Net losses on derivatives increased primarily due to higher losses on equity derivatives in the current period. Other, net primarily reflects net recognized losses on equity method investments, including OpenAI.\n \nINCOME TAXES\n \nEffective Tax Rate\n \nOur effective tax rate for both fiscal years 2025 and 2024 was 18%. Our effective tax rate for the fiscal year ended June 30, 2025 was primarily impacted by changes in the mix of our earnings and tax expenses between the U.S. and foreign countries.\n \nOur effective tax rate was lower than the U.S. federal statutory rate, primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland.\n \nThe mix of income before income taxes between the U.S. and foreign countries impacted our effective tax rate as a result of the geographic distribution of, and customer demand for, our products and services. In fiscal year 2025, our U.S. income before income taxes was $69.2 billion and our foreign income before income taxes was $54.4 billion. In fiscal year 2024, our U.S. income before income taxes was $62.9 billion and our foreign income before income taxes was $44.9 billion.\n \nThe Organisation for Economic Co-operation and Development (“OECD”) published its model rules “Tax Challenges Arising From the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two)” which established a global minimum corporate tax rate of 15% for certain multinational enterprises. Many countries have implemented or are in the process of implementing the Pillar Two legislation, which applies to Microsoft beginning in fiscal year 2025. While we do not currently estimate a material impact to our consolidated financial statements, we continue to monitor the impact as countries implement legislation and the OECD provides additional guidance.\n \nWe are currently assessing the One Big Beautiful Bill Act (“OBBBA”) which was enacted on July 4, 2025. The OBBBA provides a U.S. global intangible low-taxed income effective tax rate of 14% effective fiscal year 2027 for Microsoft. It also provides bonus depreciation for certain assets placed into service after January 19, 2025 and an election to expense U.S. incurred research or experimental expenditures.\n \nUncertain Tax Positions\n \nWe remain under audit by the IRS for tax years 2014 to 2017. With respect to the audit for tax years 2004 to 2013, on September 26, 2023, we received Notices of Proposed Adjustment (“NOPAs”) from the IRS. The primary issues in the NOPAs relate to intercompany transfer pricing. In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest. As of June 30, 2025, we believe our allowances for income tax contingencies are adequate. We disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals office and, if necessary, judicial proceedings. We do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our income tax contingencies for these issues within the next 12 months.\n \nWe are subject to income tax in many jurisdictions outside the U.S., some of which are currently under audit by local tax authorities. The resolution of these audits is not expected to be material to our consolidated financial statements. Our operations in Ireland remain subject to examination for tax years 2020 and thereafter.\n \nLIQUIDITY AND CAPITAL RESOURCES\n \nWe 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.\n \nCash, Cash Equivalents, and Investments\n \nCash, cash equivalents, and short-term investments totaled $94.6 billion and $75.5 billion as of June 30, 2025 and 2024, respectively. Equity and other investments were $15.4 billion and $14.6 billion as of June 30, 2025 and 2024, 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.\n \nValuation\n \nIn 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.\n \nA 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. In addition, all our broker-priced investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriate for these investments. Our fair value processes include controls that are designed to ensure appropriate fair values are recorded. These controls include model validation, review of key model inputs, analysis of period-over-period fluctuations, and independent recalculation of prices where appropriate.\n \nCash Flows\n \nCash from operations increased $17.6 billion to $136.2 billion for fiscal year 2025, primarily due to an increase in cash received from customers, offset in part by an increase in cash paid to suppliers and employees and cash used to pay income taxes. Cash used in financing increased $13.9 billion to $51.7 billion for fiscal year 2025, primarily due to a $9.5 billion increase in cash used for repayments of debt, net of proceeds. Cash used in investing decreased $24.4 billion to $72.6 billion for fiscal year 2025, primarily due to a $63.2 billion decrease in cash used for acquisitions of companies, net of cash acquired and divestitures, and purchases of intangible and other assets, offset in part by a $22.3 billion increase in cash used in net investment purchases, sales, and maturities, and a $20.1 billion increase in additions to property and equipment.\n \nDebt Proceeds\n \nWe issue debt to take advantage of favorable pricing and liquidity in the debt markets, reflecting our credit rating. The proceeds of these issuances were or will be used for general corporate purposes, which may include, among other things, funding for working capital, capital expenditures, repurchases of capital stock, acquisitions, and repayment of existing debt. Refer to Note 10 – Debt of the Notes to Financial Statements.\n \nUnearned Revenue\n \nUnearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include cloud services and Software Assurance (“SA”). Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service. Refer to Note 1 – Accounting Policies of the Notes to Financial Statements.\n \nThe following table outlines the expected future recognition of unearned revenue as of June 30, 2025:\n \n \n\n (In millions)\n \n \n \n\n Three Months Ending\n \n \n \n\n September 30, 2025\n $ 25,191\n \n \n\n December 31, 2025\n 19,733\n \n \n\n March 31, 2026\n 13,742\n \n \n\n June 30, 2026\n 5,889\n \n \n\n Thereafter\n 2,710\n \n \n\n Total\n $67,265\n \n \n \nIf our customers choose to license cloud-based versions of our products and services rather than licensing transaction-based products and services, the associated revenue will shift from being recognized at the time of the transaction to being recognized over the subscription period or upon consumption, as applicable. Refer to Note 12 – Unearned Revenue of the Notes to Financial Statements.\n \nMaterial Cash Requirements and Other Obligations\n \nContractual Obligations\n \nThe following table summarizes the payments due by fiscal year for our outstanding contractual obligations as of June 30, 2025:\n \n \n\n (In millions)\n 2026\n \n Thereafter\n \n Total\n \n \n\n Long-term debt: (a)\n \n \n \n \n \n \n \n\n Principal payments\n $ 3,000\n \n $ 46,206\n \n $ 49,206\n \n \n\n Interest payments\n 1,509\n \n 25,527\n \n 27,036\n \n \n\n Construction commitments (b)\n 26,859\n \n 5,290\n \n 32,149\n \n \n\n Operating and finance leases, including imputed interest (c)\n 12,798\n \n 165,903\n \n 178,701\n \n \n\n Purchase commitments (d)\n 103,940\n \n 6,013\n \n 109,953\n \n \n\n Total\n $ 148,106\n \n $ 248,939\n \n $ 397,045\n \n \n \n \nRefer to Note 10 – Debt of the Notes to Financial Statements.\n \nRefer to Note 6 – Property and Equipment of the Notes to Financial Statements.\n \nRefer to Note 13 – Leases of the Notes to Financial Statements.\n \nPurchase commitments primarily relate to datacenters and include open purchase orders and take-or-pay contracts that are not presented as construction commitments above.\n \n \nIncome Taxes\n \nAs a result of the TCJA, we are required to pay a one-time transition tax on deferred foreign income not previously subject to U.S. income tax. Under the TCJA, the transition tax is payable in interest-free installments over eight years, with 8% due in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight. As of June 30, 2025, our eighth transition tax installment of $4.4 billion is short-term and payable in the first quarter of fiscal year 2026.\n \nShare Repurchases\n \nDuring fiscal years 2025 and 2024, we repurchased 31 million shares and 32 million shares of our common stock for $13.0 billion and $12.0 billion, respectively, through our share repurchase program. All repurchases were made using cash resources. As of June 30, 2025, $57.3 billion remained of our $60 billion share repurchase program. Refer to Note 15 – Stockholders’ Equity of the Notes to Financial Statements.\n \nDividends\n \nDuring fiscal years 2025 and 2024, our Board of Directors declared dividends totaling $24.7 billion and $22.3 billion, respectively. We intend to continue returning capital to shareholders in the form of dividends, subject to declaration by our Board of Directors. Refer to Note 15 – Stockholders’ Equity of the Notes to Financial Statements.\n \nOther Planned Uses of Capital\n \nWe will continue to invest in sales, marketing, product support infrastructure, and existing and advanced areas of technology, as well as acquisitions that align with our business strategy. Additions to property and equipment will continue, including new facilities, datacenters, and computer systems for research and development, sales and marketing, support, and administrative staff. We will continue to invest in capital expenditures to support growth in our cloud offerings and our investments in AI infrastructure and training. We have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. We have not engaged in any related party transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of capital resources.\n \nRECENT ACCOUNTING GUIDANCE\n \nRefer to Note 1 – Accounting Policies of the Notes to Financial Statements.\n \nCRITICAL ACCOUNTING ESTIMATES\n \nOur consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and could have a material impact on our financial condition or results of operations. We have critical accounting estimates in the areas of revenue recognition, impairment of investment securities, goodwill, research and development costs, legal and other contingencies, and income taxes.\n \nRevenue Recognition\n \nOur contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided.\n \nJudgment is required to determine the standalone selling price (“SSP”) for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.\n \nIn instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.\n \nDue to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, including the exercise pattern of certain benefits across our portfolio of customers.\n \nOur products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our products and services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Changes to our estimated variable consideration were not material for the periods presented.\n \nImpairment of Investment Securities\n \nWe review debt investments quarterly for credit losses and impairment. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. This determination requires significant judgment. In making this judgment, we employ a systematic methodology that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments.\n \nEquity investments without readily determinable fair values are written down to fair value if a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than carrying value. We perform a qualitative assessment on a periodic basis. We are required to estimate the fair value of the investment to determine the amount of the impairment loss. Once an investment is determined to be impaired, an impairment charge is recorded in other income (expense), net.\n \nGoodwill\n \nWe allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.\n \nApplication of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital.\n \nThe estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.\n \nResearch and Development Costs\n \nCosts incurred internally in researching and developing a software product to be marketed or sold to external users are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to production. The amortization of these costs is included in cost of revenue over the estimated life of the products.\n \nLegal and Other Contingencies\n \nThe outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our consolidated financial statements.\n \nIncome Taxes\n \nThe objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accounting literature also provides guidance on derecognition of income tax assets and liabilities, classification of deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our consolidated financial statements.\n \nSTATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS\n \nManagement is responsible for the preparation of the consolidated financial statements and related information that are presented in this report. The consolidated financial statements, which include amounts based on management’s estimates and judgments, have been prepared in conformity with accounting principles generally accepted in the United States of America.\n \nThe Company designs and maintains accounting and internal control systems to provide reasonable assurance at reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing consolidated financial statements and maintaining accountability for assets. These systems are augmented by written policies, an organizational structure providing division of responsibilities, careful selection and training of qualified personnel, and a program of internal audits.\n \nThe Company engaged Deloitte & Touche LLP, an independent registered public accounting firm, to audit and render an opinion on the consolidated financial statements and internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).\n \nThe Board of Directors, through its Audit Committee, consisting solely of independent directors of the Company, meets periodically with management, internal auditors, and our independent registered public accounting firm to ensure that each is meeting its responsibilities and to discuss matters concerning internal controls and financial reporting. Deloitte & Touche LLP and the internal auditors each have full and free access to the Audit Committee.\n \n\n Satya Nadella\n\n Chief Executive Officer\n \n \n\n Amy E. Hood\n\n Executive Vice President and Chief Financial Officer\n \n \n\n Alice L. Jolla\n\n Corporate Vice President and Chief Accounting Officer\n \n \n \n \nQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n \nRISKS\n \nWe are exposed to economic risk from foreign exchange rates, interest rates, credit risk, and equity prices. We use derivatives instruments to manage these risks, however, they may still impact our consolidated financial statements.\n \nForeign Currencies\n \nCertain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency positions, including hedges. Principal currency exposures include the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar.\n \nInterest Rate\n \nSecurities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We manage the average maturity of the fixed-income portfolio to achieve economic returns that correlate to certain global fixed-income indices.\n \nCredit\n \nOur fixed-income portfolio is diversified and consists primarily of investment-grade securities. We manage credit exposures relative to broad-based indices to facilitate portfolio diversification.\n \nEquity\n \nSecurities held in our equity investments portfolio are subject to price risk.\n \nSENSITIVITY ANALYSIS\n \nThe following table sets forth the potential loss in future earnings or fair values, including associated derivatives, resulting from hypothetical changes in relevant market rates or prices:\n \n \n\n (In millions)\n \n \n\n Risk Categories\n       \n Hypothetical Change\n \n \n June 30,\n\n 2025\n \n \n \n \n Impact\n \n \n\n Foreign currency – Revenue\n \n 10% decrease in foreign exchange rates\n $ (11,596)\n \n \n Earnings\n \n \n\n Foreign currency – Investments\n \n 10% decrease in foreign exchange rates\n (17)\n \n \n Fair Value\n \n \n\n Interest rate\n \n 100 basis point increase in U.S. treasury interest rates\n (1,415)\n \n \n Fair Value\n \n \n\n Credit\n \n 100 basis point increase in credit spreads\n (436)\n \n \n Fair Value\n \n \n\n Equity\n \n 10% decrease in equity market prices\n (1,213)\n \n \n Earnings\n \n \n \n\n \n \n \nFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA\n \nINCOME STATEMENTS\n \n \n\n (In millions, except per share amounts)\n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Revenue:\n \n \n \n \n \n \n \n\n Product\n $ 63,946\n \n $ 64,773\n \n $ 64,699\n \n \n\n Service and other\n 217,778\n \n 180,349\n \n 147,216\n \n \n\n Total revenue\n 281,724\n \n 245,122\n \n 211,915\n \n \n\n Cost of revenue:\n \n \n \n \n \n \n \n\n Product\n 13,501\n \n 15,272\n \n 17,804\n \n \n\n Service and other\n 74,330\n \n 58,842\n \n 48,059\n \n \n\n Total cost of revenue\n 87,831\n \n 74,114\n \n 65,863\n \n \n\n Gross margin\n 193,893\n \n 171,008\n \n 146,052\n \n \n\n Research and development\n 32,488\n \n 29,510\n \n 27,195\n \n \n\n Sales and marketing\n 25,654\n \n 24,456\n \n 22,759\n \n \n\n General and administrative\n 7,223\n \n 7,609\n \n 7,575\n \n \n\n Operating income\n 128,528\n \n 109,433\n \n 88,523\n \n \n\n Other income (expense), net\n (4,901)\n \n (1,646)\n \n 788\n \n \n\n Income before income taxes\n 123,627\n \n 107,787\n \n 89,311\n \n \n\n Provision for income taxes\n 21,795\n \n 19,651\n \n 16,950\n \n \n\n Net income\n $ 101,832\n \n $ 88,136\n \n $ 72,361\n \n \n\n Earnings per share:\n \n \n \n \n \n \n \n\n Basic\n $ 13.70\n \n $ 11.86\n \n $ 9.72\n \n \n\n Diluted\n $ 13.64\n \n $ 11.80\n \n $ 9.68\n \n \n\n Weighted average shares outstanding:\n \n \n \n \n \n \n \n\n Basic\n 7,433\n \n 7,431\n \n 7,446\n \n \n\n Diluted\n 7,465\n \n 7,469\n \n 7,472\n \n \n \nRefer to accompanying notes.\n \nCOMPREHENSIVE INCOME STATEMENTS\n \n \n\n (In millions)\n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Net income\n $ 101,832\n \n $ 88,136\n \n $ 72,361\n \n \n\n Other comprehensive income (loss), net of tax:\n \n \n \n \n \n \n \n\n Net change related to derivatives\n (5)\n \n 24\n \n (14)\n \n \n\n Net change related to investments\n 1,574\n \n 957\n \n (1,444)\n \n \n\n Translation adjustments and other\n 674\n \n (228)\n \n (207)\n \n \n\n Other comprehensive income (loss)\n 2,243\n \n 753\n \n (1,665)\n \n \n\n Comprehensive income\n $ 104,075\n \n $ 88,889\n \n $ 70,696\n \n \n \nRefer to accompanying notes.\n \n \n \nBALANCE SHEETS\n \n \n\n (In millions)\n \n \n\n June 30,\n 2025\n \n 2024\n \n \n\n Assets\n \n \n \n \n \n\n Current assets:\n \n \n \n \n \n\n Cash and cash equivalents\n $ 30,242\n \n $ 18,315\n \n \n\n Short-term investments\n 64,323\n \n 57,228\n \n \n\n Total cash, cash equivalents, and short-term investments\n 94,565\n \n 75,543\n \n \n\n Accounts receivable, net of allowance for doubtful accounts of $944 and $830\n 69,905\n \n 56,924\n \n \n\n Inventories\n 938\n \n 1,246\n \n \n\n Other current assets\n 25,723\n \n 26,021\n \n \n\n Total current assets\n 191,131\n \n 159,734\n \n \n\n Property and equipment, net of accumulated depreciation of $93,653 and $76,421\n 204,966\n \n 135,591\n \n \n\n Operating lease right-of-use assets\n 24,823\n \n 18,961\n \n \n\n Equity and other investments\n 15,405\n \n 14,600\n \n \n\n Goodwill\n 119,509\n \n 119,220\n \n \n\n Intangible assets, net\n 22,604\n \n 27,597\n \n \n\n Other long-term assets\n 40,565\n \n 36,460\n \n \n\n Total assets\n $ 619,003\n \n $ 512,163\n \n \n\n Liabilities and stockholders’ equity\n \n \n \n \n \n\n Current liabilities:\n \n \n \n \n \n\n Accounts payable\n $ 27,724\n \n $ 21,996\n \n \n\n Short-term debt\n 0\n \n 6,693\n \n \n\n Current portion of long-term debt\n 2,999\n \n 2,249\n \n \n\n Accrued compensation\n 13,709\n \n 12,564\n \n \n\n Short-term income taxes\n 7,211\n \n 5,017\n \n \n\n Short-term unearned revenue\n 64,555\n \n 57,582\n \n \n\n Other current liabilities\n 25,020\n \n 19,185\n \n \n\n Total current liabilities\n 141,218\n \n 125,286\n \n \n\n Long-term debt\n 40,152\n \n 42,688\n \n \n\n Long-term income taxes\n 25,986\n \n 27,931\n \n \n\n Long-term unearned revenue\n 2,710\n \n 2,602\n \n \n\n Deferred income taxes\n 2,835\n \n 2,618\n \n \n\n Operating lease liabilities\n 17,437\n \n 15,497\n \n \n\n Other long-term liabilities\n 45,186\n \n 27,064\n \n \n\n Total liabilities\n 275,524\n \n 243,686\n \n \n\n Commitments and contingencies\n \n \n \n \n \n\n Stockholders’ equity:\n \n \n \n \n \n\n Common stock and paid-in capital – shares authorized 24,000; outstanding 7,434 and 7,434\n 109,095\n \n 100,923\n \n \n\n Retained earnings\n 237,731\n \n 173,144\n \n \n\n Accumulated other comprehensive loss\n (3,347)\n \n (5,590)\n \n \n\n Total stockholders’ equity\n 343,479\n \n 268,477\n \n \n\n Total liabilities and stockholders’ equity\n $ 619,003\n \n $ 512,163\n \n \n \nRefer to accompanying notes.\n \n \n \nCASH FLOWS STATEMENTS\n \n \n\n (In millions)\n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Operations\n \n \n \n \n \n \n \n\n Net income\n $ 101,832\n \n $ 88,136\n \n $ 72,361\n \n \n\n Adjustments to reconcile net income to net cash from operations:\n \n \n \n \n \n \n \n\n Depreciation, amortization, and other\n 34,153\n \n 22,287\n \n 13,861\n \n \n\n Stock-based compensation expense\n 11,974\n \n 10,734\n \n 9,611\n \n \n\n Net recognized losses on investments and derivatives\n 609\n \n 305\n \n 196\n \n \n\n Deferred income taxes\n (7,056)\n \n (4,738)\n \n (6,059)\n \n \n\n Changes in operating assets and liabilities:\n \n \n \n \n \n \n \n\n Accounts receivable\n (10,581)\n \n (7,191)\n \n (4,087)\n \n \n\n Inventories\n 309\n \n 1,284\n \n 1,242\n \n \n\n Other current assets\n (3,044)\n \n (1,648)\n \n (1,991)\n \n \n\n Other long-term assets\n (2,950)\n \n (6,817)\n \n (2,833)\n \n \n\n Accounts payable\n 569\n \n 3,545\n \n (2,721)\n \n \n\n Unearned revenue\n 5,438\n \n 5,348\n \n 5,535\n \n \n\n Income taxes\n (38)\n \n 1,687\n \n (358)\n \n \n\n Other current liabilities\n 5,922\n \n 4,867\n \n 2,272\n \n \n\n Other long-term liabilities\n (975)\n \n 749\n \n 553\n \n \n\n Net cash from operations\n 136,162\n \n 118,548\n \n 87,582\n \n \n\n Financing\n \n \n \n \n \n \n \n\n Proceeds from issuance (repayments) of debt, maturities of 90 days or less, net\n (5,746)\n \n 5,250\n \n 0\n \n \n\n Proceeds from issuance of debt\n 0\n \n 24,395\n \n 0\n \n \n\n Repayments of debt\n (3,216)\n \n (29,070)\n \n (2,750)\n \n \n\n Common stock issued\n 2,056\n \n 2,002\n \n 1,866\n \n \n\n Common stock repurchased\n (18,420)\n \n (17,254)\n \n (22,245)\n \n \n\n Common stock cash dividends paid\n (24,082)\n \n (21,771)\n \n (19,800)\n \n \n\n Other, net\n (2,291)\n \n (1,309)\n \n (1,006)\n \n \n\n Net cash used in financing\n (51,699)\n \n (37,757)\n \n (43,935)\n \n \n\n Investing\n \n \n \n \n \n \n \n\n Additions to property and equipment\n (64,551)\n \n (44,477)\n \n (28,107)\n \n \n\n Acquisition of companies, net of cash acquired and divestitures, and purchases of intangible and other assets\n (5,978)\n \n (69,132)\n \n (1,670)\n \n \n\n Purchases of investments\n (29,775)\n \n (17,732)\n \n (37,651)\n \n \n\n Maturities of investments\n 16,079\n \n 24,775\n \n 33,510\n \n \n\n Sales of investments\n 9,309\n \n 10,894\n \n 14,354\n \n \n\n Other, net\n 2,317\n \n (1,298)\n \n (3,116)\n \n \n\n Net cash used in investing\n (72,599)\n \n (96,970)\n \n (22,680)\n \n \n\n Effect of foreign exchange rates on cash and cash equivalents\n 63\n \n (210)\n \n (194)\n \n \n\n Net change in cash and cash equivalents\n 11,927\n \n (16,389)\n \n 20,773\n \n \n\n Cash and cash equivalents, beginning of period\n 18,315\n \n 34,704\n \n 13,931\n \n \n\n Cash and cash equivalents, end of period\n $ 30,242\n \n $ 18,315\n \n $ 34,704\n \n \n \nRefer to accompanying notes.\n \n \n \nSTOCKHOLDERS’ EQUITY STATEMENTS\n \n \n\n (In millions, except per share amounts)\n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Common stock and paid-in capital\n \n \n \n \n \n \n \n\n Balance, beginning of period\n $ 100,923\n \n $ 93,718\n \n $ 86,939\n \n \n\n Common stock issued\n 2,056\n \n 2,002\n \n 1,866\n \n \n\n Common stock repurchased\n (5,856)\n \n (5,712)\n \n (4,696)\n \n \n\n Stock-based compensation expense\n 11,974\n \n 10,734\n \n 9,611\n \n \n\n Other, net\n (2)\n \n 181\n \n (2)\n \n \n\n Balance, end of period\n 109,095\n \n 100,923\n \n 93,718\n \n \n\n Retained earnings\n \n \n \n \n \n \n \n\n Balance, beginning of period\n 173,144\n \n 118,848\n \n 84,281\n \n \n\n Net income\n 101,832\n \n 88,136\n \n 72,361\n \n \n\n Common stock cash dividends\n (24,677)\n \n (22,293)\n \n (20,226)\n \n \n\n Common stock repurchased\n (12,568)\n \n (11,547)\n \n (17,568)\n \n \n\n Balance, end of period\n 237,731\n \n 173,144\n \n 118,848\n \n \n\n Accumulated other comprehensive loss\n \n \n \n \n \n \n \n\n Balance, beginning of period\n (5,590)\n \n (6,343)\n \n (4,678)\n \n \n\n Other comprehensive income (loss)\n 2,243\n \n 753\n \n (1,665)\n \n \n\n Balance, end of period\n (3,347)\n \n (5,590)\n \n (6,343)\n \n \n\n Total stockholders’ equity\n $ 343,479\n \n $ 268,477\n \n $ 206,223\n \n \n\n Cash dividends declared per common share\n $ 3.32\n \n $ 3.00\n \n $ 2.72\n \n \n \nRefer to accompanying notes.\n \n \n \nNOTES\n NOTES TO FINANCIAL STATEMENTS\n \nNOTE 1 — ACCOUNTING POLICIES\n \nAccounting Principles\n \nOur consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).\n \nPrinciples of Consolidation\n \nThe consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated.\n \nRecast of Certain Prior Period Information\n \nIn 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.\n \nThe recast of prior period information had no impact on our consolidated balance sheets, consolidated income statements, or consolidated cash flows statements.\n \nEstimates and Assumptions\n \nPreparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price (“SSP”) of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; the fair value of and/or potential impairment of goodwill and intangible assets for our reporting units; product life cycles; useful lives of our tangible and intangible assets; allowances for doubtful accounts; stock-based compensation forfeiture rates; when technological feasibility is achieved for our products; the potential outcome of uncertain tax positions that have been recognized in our consolidated financial statements or tax returns; and determining the timing and amount of impairments for investments. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties.\n \nForeign Currencies\n \nAssets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to other comprehensive income.\n \nRevenue\n \nProduct Revenue and Service and Other Revenue\n \nProduct revenue includes sales from operating systems, cross-device productivity and collaboration applications, server applications, business solution applications, desktop and server management tools, software development tools, video games, and hardware such as PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.\n \nService and other revenue includes sales from cloud-based solutions that provide customers with software, services, platforms, and content such as Office 365, Azure, Dynamics 365, and gaming; solution support; and consulting services. Service and other revenue also includes sales from online advertising and LinkedIn.\n \nRevenue Recognition\n \nRevenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.\n \nNature of Products and Services\n \nLicenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. In cases where we allocate revenue to software updates, primarily because the updates are provided at no additional charge, revenue is recognized as the updates are provided, which is generally ratably over the estimated life of the related device or license.\n \nCloud services, which allow customers to use hosted software over the contract period without taking possession of the software, are provided on either a subscription or consumption basis. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract period. Revenue related to cloud services provided on a consumption basis, such as the amount of storage used in a period, is recognized based on the customer utilization of such resources. When cloud services require a significant level of integration and interdependency with software and the individual components are not considered distinct, all revenue is recognized over the period in which the cloud services are provided.\n \nCertain volume licensing programs, including Enterprise Agreements, include on-premises licenses combined with Software Assurance (“SA”). SA conveys rights to new software and upgrades released over the contract period and provides support, tools, and training to help customers deploy and use products more efficiently. On-premises licenses are considered distinct performance obligations when sold with SA. Revenue allocated to SA is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits, given that SA comprises distinct performance obligations that are satisfied over time.\n \nRevenue from search advertising is recognized when the advertisement appears in the search results or when the action necessary to earn the revenue has been completed. Revenue from consulting services is recognized as services are provided.\n \nOur hardware is generally highly dependent on, and interrelated with, the underlying operating system and cannot function without the operating system. In these cases, the hardware and software license are accounted for as a single performance obligation and revenue is recognized at the point in time when ownership is transferred to resellers or directly to end customers through retail stores and online marketplaces.\n \nRefer to Note 18 – Segment Information and Geographic Data for further information, including revenue by significant product and service offering.\n \nSignificant Judgments\n \nOur contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services, primarily Office 365, depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from Office 365 is recognized ratably over the period in which the cloud services are provided.\n \nJudgment is required to determine the SSP for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.\n \nIn instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.\n \nDue to the various benefits from and the nature of our SA program, judgment is required to assess the pattern of delivery, including the exercise pattern of certain benefits across our portfolio of customers.\n \nOur products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our products and services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Changes to our estimated variable consideration were not material for the periods presented.\n \nContract Balances and Other Receivables\n \nTiming of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record a receivable related to revenue recognized for multi-year on-premises licenses as we have an unconditional right to invoice and receive payment in the future related to those licenses.\n \nUnearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include cloud services and SA. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period. Unearned revenue also includes payments for consulting services to be performed in the future, LinkedIn subscriptions, Office 365 subscriptions, Xbox subscriptions, Windows post-delivery support, Dynamics business solutions, and other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service.\n \nRefer to Note 12 – Unearned Revenue for further information, including unearned revenue by segment and changes in unearned revenue during the period.\n \nPayment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced annually with revenue recognized upfront.\n \nAs of June 30, 2025 and 2024, long-term accounts receivable, net of allowance for doubtful accounts, was $5.2 billion and $4.9 billion, respectively, and is included in other long-term assets in our consolidated balance sheets.\n \nAs of June 30, 2025 and 2024, other receivables related to activities to facilitate the purchase of server components were $8.2 billion and $10.5 billion, respectively, and are included in other current assets in our consolidated balance sheets.\n \nWe record financing receivables when we offer certain customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of June 30, 2025 and 2024, our financing receivables, net were $4.3 billion and $4.5 billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets.\n \nWe record an allowance for doubtful accounts which reflects our best estimate of credit losses inherent in the accounts receivable and financing receivable balances. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.\n \nAssets Recognized from Costs to Obtain a Contract with a Customer\n \nWe recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets in our consolidated balance sheets.\n \nWe apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include our internal sales organization compensation program and certain partner sales incentive programs as we have determined annual compensation is commensurate with annual sales activities.\n \nCost of Revenue\n \nCost of revenue includes: costs incurred to support and maintain cloud-based and other online products and services, including datacenter costs and royalties; manufacturing and distribution costs for products sold and programs licensed; operating costs related to product support service centers and product distribution centers; traffic acquisition costs to drive traffic to our websites and to acquire online advertising space; and costs associated with the delivery of consulting services.\n \nResearch and Development\n \nResearch and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs and the depreciation and amortization of assets used to conduct research and development. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products.\n \nSales and Marketing\n \nSales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs. Advertising costs are expensed as incurred. Advertising expense was $2.1 billion, $1.7 billion, and $904 million in fiscal years 2025, 2024, and 2023, respectively.\n \nStock-Based Compensation\n \nCompensation cost for stock awards, which include restricted stock units (“RSUs”) and performance stock units (“PSUs”), is measured at the fair value on the grant date and recognized as expense, net of estimated forfeitures, over the related service or performance period. The fair value of stock awards is based on the quoted price of our common stock on the grant date less the present value of expected dividends not received during the vesting period. We measure the fair value of PSUs using a Monte Carlo valuation model. Compensation cost for RSUs is recognized using the straight-line method and for PSUs is recognized using the accelerated method.\n \nCompensation expense for the employee stock purchase plan (“ESPP”) is measured as the discount the employee is entitled to upon purchase and is recognized in the period of purchase.\n \nIncome Taxes\n \nIncome tax expense includes U.S. and international income taxes, and interest and penalties on uncertain tax positions. Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. Deferred tax assets are reported net of a valuation allowance when it is more likely than not that a tax benefit will not be realized. All deferred income taxes are classified as long-term in our consolidated balance sheets.\n \nFinancial Instruments\n \nInvestments\n \nWe consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.\n \nDebt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in fair value, excluding credit losses and impairments, are recorded in other comprehensive income. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/ or investee conditions deteriorate, we may incur future impairments.\n \nEquity investments with readily determinable fair values are measured at fair value. Equity investments without readily determinable fair values are measured using the equity method or measured at cost with adjustments for observable changes in price or impairments (referred to as the measurement alternative). We perform a qualitative assessment on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Changes in value are recorded in other income (expense), net.\n \nInvestments that are considered variable interest entities (“VIEs”) are evaluated to determine whether we are the primary beneficiary of the VIE, in which case we would be required to consolidate the entity. We evaluate whether we have (1) the power to direct the activities that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We have determined we are not the primary beneficiary of any of our VIE investments. Therefore, our VIE investments are not consolidated and the majority are accounted for under the equity method of accounting. We have an investment in OpenAI Global, LLC (“OpenAI”) and have made total funding commitments of $13 billion. The investment is accounted for under the equity method of accounting.\n \nDerivatives\n \nDerivative instruments are recognized as either assets or liabilities and measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.\n \nFor derivative instruments designated as fair value hedges, gains and losses are recognized in other income (expense), net with offsetting gains and losses on the hedged items. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.\n \nFor derivative instruments designated as cash flow hedges, gains and losses are initially reported as a component of other comprehensive income and subsequently recognized in other income (expense), net with the corresponding hedged item. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.\n \nFor derivative instruments that are not designated as hedges, gains and losses from changes in fair values are primarily recognized in other income (expense), net.\n \nFair Value Measurements\n \nWe account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:\n \n \nLevel 1 – inputs are based upon unadjusted quoted prices for identical instruments in active markets. Our Level 1 investments include U.S. government securities, common and preferred stock, and mutual funds. Our Level 1 derivative assets and liabilities include those actively traded on exchanges.\n \nLevel 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit spreads, foreign exchange rates, and forward and spot prices for currencies. Our Level 2 investments include commercial paper, certificates of deposit, U.S. agency securities, foreign government bonds, mortgage- and asset-backed securities, corporate notes and bonds, and municipal securities. Our Level 2 derivative assets and liabilities include certain cleared swap contracts and over-the-counter forward, option, and swap contracts.\n \nLevel 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 assets and liabilities include investments in corporate notes and bonds, municipal securities, and goodwill and intangible assets, when they are recorded at fair value due to an impairment charge. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities.\n \n \nWe measure equity investments without readily determinable fair values on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections.\n \nOur other current financial assets and current financial liabilities have fair values that approximate their carrying values.\n \nProperty and Equipment\n \nProperty and equipment is stated at cost less accumulated depreciation and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: software developed or acquired for internal use, three years; computer equipment, two to six years; buildings and improvements, five to 15 years; leasehold improvements, three to 15 years; and furniture and equipment, one to 10 years. Land is not depreciated.\n \nLeases\n \nWe determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our consolidated balance sheets.\n \nROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.\n \nWe have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.\n \nGoodwill\n \nGoodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.\n \nIntangible Assets\n \nOur intangible assets are subject to amortization and are amortized over the estimated useful life in proportion to the economic benefits received. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.\n \nRelated Party Transactions\n \nIn March 2024, we entered into an agreement with Inflection AI, Inc. (“Inflection”), pursuant to which we obtained a non-exclusive license to Inflection’s intellectual property. Reid Hoffman, a member of our Board of Directors, is a co-founder of and serves on the board of directors of Inflection. As of the date of the agreement with Inflection, Reprogrammed Interchange LLC (“Reprogrammed”) and entities affiliated with Greylock Ventures (“Greylock”) each held less than a 10% equity interest in Inflection. Mr. Hoffman may be deemed to beneficially own the shares held by Reprogrammed and Greylock by virtue of his relationship with such entities. Mr. Hoffman did not participate in any portions of the meetings of our Board of Directors or any committee thereof to review and approve the transaction with Inflection.\n \nRecent Accounting Guidance\n \nRecently Adopted Accounting Guidance\n \nSegment Reporting – Improvements to Reportable Segment Disclosures\n \nIn November 2023, the Financial Accounting Standards Board (“FASB”) issued a new standard to improve reportable segment disclosures. The guidance expands the disclosures required for reportable segments in our annual and interim consolidated financial statements, primarily through enhanced disclosures about significant segment expenses. 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.\n \nRecent Accounting Guidance Not Yet Adopted\n \nIncome Taxes – Improvements to Income Tax Disclosures\n \nIn December 2023, the FASB issued a new standard to improve income tax disclosures. The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. The standard will be effective for us beginning with our annual reporting for fiscal year 2026, with early adoption permitted. We are currently evaluating the impact of this standard on our income tax disclosures.\n \nIncome Statement – Disaggregation of Income Statement Expenses\n \nIn November 2024, the FASB issued a new standard to expand disclosures about income statement expenses. The guidance requires disaggregation of certain costs and expenses included in each relevant expense caption on our consolidated income statements in a separate note to the financial statements at each interim and annual reporting period, including amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The standard will be effective for us beginning with our annual reporting for fiscal year 2028 and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of this standard on our disclosures.\n \n \n \nNOTE 2 — EARNINGS PER SHARE\n \nBasic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and stock awards.\n \nThe components of basic and diluted EPS were as follows:\n \n \n\n (In millions, except per share amounts)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Net income available for common shareholders (A)\n $ 101,832\n \n $ 88,136\n \n $ 72,361\n \n \n\n Weighted average outstanding shares of common stock (B)\n 7,433\n \n 7,431\n \n 7,446\n \n \n\n Dilutive effect of stock-based awards\n 32\n \n 38\n \n 26\n \n \n\n Common stock and common stock equivalents (C)\n 7,465\n \n 7,469\n \n 7,472\n \n \n\n Earnings Per Share\n \n \n \n \n \n \n \n\n Basic (A/B)\n $ 13.70\n \n $ 11.86\n \n $ 9.72\n \n \n\n Diluted (A/C)\n $ 13.64\n \n $ 11.80\n \n $ 9.68\n \n \n \nAnti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.\n \n \n \nNOTE 3 — OTHER INCOME (EXPENSE), NET\n \nThe components of other income (expense), net were as follows:\n \n \n\n (In millions)\n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Interest and dividends income\n $ 2,647\n \n $ 3,157\n \n $ 2,994\n \n \n\n Interest expense\n (2,385)\n \n (2,935)\n \n (1,968)\n \n \n\n Net recognized gains (losses) on investments\n (349)\n \n (118)\n \n 260\n \n \n\n Net losses on derivatives\n (260)\n \n (187)\n \n (456)\n \n \n\n Net gains (losses) on foreign currency remeasurements\n 171\n \n (244)\n \n 181\n \n \n\n Other, net\n (4,725)\n \n (1,319)\n \n (223)\n \n \n\n Total\n $ (4,901)\n \n $ (1,646)\n \n $ 788\n \n \n \nOther, net primarily reflects net recognized losses on equity method investments, including OpenAI.\n \nNet Recognized Gains (Losses) on Investments\n \nNet recognized gains (losses) on debt investments were as follows:\n \n \n\n (In millions)\n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Realized gains from sales of available-for-sale securities\n $ 40\n \n $ 22\n \n $ 36\n \n \n\n Realized losses from sales of available-for-sale securities\n (65)\n \n (98)\n \n (124)\n \n \n\n Impairments and allowance for credit losses\n 8\n \n 23\n \n (10)\n \n \n\n Total\n $ (17)\n \n $ (53)\n \n $ (98)\n \n \n \nNet recognized gains (losses) on equity investments were as follows:\n \n \n\n (In millions)\n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Net realized gains on investments sold\n $ 83\n \n $ 18\n \n $ 75\n \n \n\n Net unrealized gains on investments still held\n 536\n \n 146\n \n 303\n \n \n\n Impairments of investments\n (951)\n \n (229)\n \n (20)\n \n \n\n Total\n $ (332)\n \n $ (65)\n \n $ 358\n \n \n \n \n \nNOTE 4 — INVESTMENTS\n \nInvestment Components\n \nThe components of investments were as follows:\n \n \n\n (In millions)\n \n \n Fair Value\n\n Level\n \n \n \n \n \n Adjusted\n\n Cost Basis\n \n \n \n \n \n Unrealized\n\n Gains\n \n \n \n \n \n Unrealized\n\n Losses\n \n \n \n \n \n Recorded\n\n Basis\n \n \n \n \n \n Cash and\n\n Cash\n\n Equivalents\n \n \n \n \n \n Short-term\n\n Investments\n \n \n \n \n \n Equity and\n\n Other\n\n Investments\n \n \n \n \n\n June 30, 2025\n \n \n\n Changes in Fair Value Recorded in Other Comprehensive Income\n \n \n \n\n Commercial paper\n Level 2\n \n $ 10,880\n \n $ 0\n \n $ 0\n \n $ 10,880\n \n $ 9,939\n \n $ 941\n \n $ 0\n \n \n\n Certificates of deposit\n Level 2\n \n 2,653\n \n 0\n \n 0\n \n 2,653\n \n 2,309\n \n 344\n \n 0\n \n \n\n U.S. government securities\n Level 1\n \n 52,878\n \n 71\n \n (1,462)\n \n 51,487\n \n 4,742\n \n 46,745\n \n 0\n \n \n\n U.S. agency securities\n Level 2\n \n 2,686\n \n 0\n \n 0\n \n 2,686\n \n 496\n \n 2,190\n \n 0\n \n \n\n Foreign government bonds\n Level 2\n \n 349\n \n 24\n \n (9)\n \n 364\n \n 0\n \n 364\n \n 0\n \n \n\n Mortgage- and asset-backed securities\n Level 2\n \n 2,558\n \n 10\n \n (27)\n \n 2,541\n \n 0\n \n 2,541\n \n 0\n \n \n\n Corporate notes and bonds\n Level 2\n \n 10,763\n \n 124\n \n (101)\n \n 10,786\n \n 0\n \n 10,786\n \n 0\n \n \n\n Corporate notes and bonds\n Level 3\n \n 2,511\n \n 65\n \n (5)\n \n 2,571\n \n 0\n \n 111\n \n 2,460\n \n \n\n Municipal securities\n Level 2\n \n 207\n \n 1\n \n (7)\n \n 201\n \n 0\n \n 201\n \n 0\n \n \n\n Municipal securities\n Level 3\n \n 104\n \n 0\n \n (14)\n \n 90\n \n 0\n \n 90\n \n 0\n \n \n\n Total debt investments\n \n \n $ 85,589\n \n $ 295\n \n $ (1,625)\n \n $ 84,259\n \n $ 17,486\n \n $ 64,313\n \n $ 2,460\n \n \n\n Changes in Fair Value Recorded in Net Income\n \n \n \n\n Equity investments\n Level 1\n \n \n \n \n \n \n \n $ 4,577\n \n $ 1,045\n \n $ 0\n \n $ 3,532\n \n \n\n Equity investments\n Other\n \n \n \n \n \n \n \n 9,141\n \n 0\n \n 0\n \n 9,141\n \n \n\n Total equity investments\n \n \n \n \n \n \n \n \n $ 13,718\n \n $ 1,045\n \n $ 0\n \n $ 12,673\n \n \n\n Cash\n \n \n \n \n \n \n \n \n $ 11,711\n \n $ 11,711\n \n $ 0\n \n $ 0\n \n \n\n Derivatives, net (a)\n \n \n \n \n \n \n \n \n 282\n \n 0\n \n 10\n \n 272\n \n \n\n Total\n \n \n \n \n \n \n \n \n $ 109,970\n \n $ 30,242\n \n $ 64,323\n \n $ 15,405\n \n \n \n \n\n (In millions)\n \n \n Fair Value\n\n Level\n \n \n \n \n \n Adjusted\n\n Cost Basis\n \n \n \n \n \n Unrealized\n\n Gains\n \n \n \n \n \n Unrealized\n\n Losses\n \n \n \n \n \n Recorded\n\n Basis\n \n \n \n \n \n Cash and\n\n Cash\n\n Equivalents\n \n \n \n \n \n Short-term\n\n Investments\n \n \n \n \n \n Equity and\n\n Other\n\n Investments\n \n \n \n \n\n June 30, 2024\n \n \n\n Changes in Fair Value Recorded in Other Comprehensive Income\n \n \n \n\n Commercial paper\n Level 2\n \n $ 4,666\n \n $ 0\n \n $ 0\n \n $ 4,666\n \n $ 4,666\n \n $ 0\n \n $ 0\n \n \n\n Certificates of deposit\n Level 2\n \n 1,547\n \n 0\n \n 0\n \n 1,547\n \n 1,503\n \n 44\n \n 0\n \n \n\n U.S. government securities\n Level 1\n \n 49,603\n \n 4\n \n (2,948)\n \n 46,659\n \n 14\n \n 46,645\n \n 0\n \n \n\n U.S. agency securities\n Level 2\n \n 17\n \n 0\n \n 0\n \n 17\n \n 0\n \n 17\n \n 0\n \n \n\n Foreign government bonds\n Level 2\n \n 319\n \n 3\n \n (16)\n \n 306\n \n 0\n \n 306\n \n 0\n \n \n\n Mortgage- and asset-backed securities\n Level 2\n \n 944\n \n 3\n \n (35)\n \n 912\n \n 0\n \n 912\n \n 0\n \n \n\n Corporate notes and bonds\n Level 2\n \n 9,106\n \n 28\n \n (318)\n \n 8,816\n \n 0\n \n 8,816\n \n 0\n \n \n\n Corporate notes and bonds\n Level 3\n \n 1,641\n \n 0\n \n (1)\n \n 1,640\n \n 0\n \n 140\n \n 1,500\n \n \n\n Municipal securities\n Level 2\n \n 262\n \n 0\n \n (13)\n \n 249\n \n 0\n \n 249\n \n 0\n \n \n\n Municipal securities\n Level 3\n \n 104\n \n 0\n \n (17)\n \n 87\n \n 0\n \n 87\n \n 0\n \n \n\n Total debt investments\n \n \n $ 68,209\n \n $ 38\n \n $ (3,348)\n \n $ 64,899\n \n $ 6,183\n \n $ 57,216\n \n $ 1,500\n \n \n\n Changes in Fair Value Recorded in Net Income\n \n \n \n\n Equity investments\n Level 1\n \n \n \n \n \n \n \n $ 3,547\n \n $ 561\n \n $ 0\n \n $ 2,986\n \n \n\n Equity investments\n Other\n \n \n \n \n \n \n \n 10,114\n \n 0\n \n 0\n \n 10,114\n \n \n\n Total equity investments\n \n \n \n \n \n \n \n \n $ 13,661\n \n $ 561\n \n $ 0\n \n $ 13,100\n \n \n\n Cash\n \n \n \n \n \n \n \n \n $ 11,571\n \n $ 11,571\n \n $ 0\n \n $ 0\n \n \n\n Derivatives, net (a)\n \n \n \n \n \n \n \n \n 12\n \n 0\n \n 12\n \n 0\n \n \n\n Total\n \n \n \n \n \n \n \n \n $ 90,143\n \n $ 18,315\n \n $ 57,228\n \n $ 14,600\n \n \n \n \nRefer to Note 5 – Derivatives for further information on the fair value of our derivative instruments.\n \n \nEquity investments presented as “Other” in the tables above include investments without readily determinable fair values measured at cost with adjustments for observable changes in price or impairments, measured using the equity method, or measured at fair value using net asset value as a practical expedient which are not categorized in the fair value hierarchy. As of June 30, 2025 and 2024, equity investments without readily determinable fair values measured at cost with adjustments for observable changes in price or impairments were $2.9 billion and $3.9 billion, respectively. Equity investments measured using the equity method were $6.0 billion as of both June 30, 2025 and 2024.\n \nUnrealized Losses on Debt Investments\n \nDebt investments with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair values were as follows:\n \n \n\n \n Less than 12 Months\n \n 12 Months or Greater\n \n \n \n \n \n Total\n\n Unrealized\n\n Losses\n \n \n \n \n\n (In millions)\n Fair Value\n \n \n \n Unrealized\n\n Losses\n \n \n \n Fair Value\n \n \n \n Unrealized\n\n Losses\n \n \n \n \n \n Total\n\n Fair Value\n \n \n \n \n \n\n June 30, 2025\n \n \n\n U.S. government and agency securities\n $ 2,569\n \n $ (51)\n \n $ 34,608\n \n $ (1,411)\n \n $ 37,177\n \n $ (1,462)\n \n \n\n Foreign government bonds\n 43\n \n (2)\n \n 106\n \n (7)\n \n 149\n \n (9)\n \n \n\n Mortgage- and asset-backed securities\n 841\n \n (4)\n \n 189\n \n (23)\n \n 1,030\n \n (27)\n \n \n\n Corporate notes and bonds\n 1,107\n \n (8)\n \n 3,105\n \n (98)\n \n 4,212\n \n (106)\n \n \n\n Municipal securities\n 0\n \n 0\n \n 168\n \n (21)\n \n 168\n \n (21)\n \n \n\n Total\n $ 4,560\n \n $ (65)\n \n $ 38,176\n \n $ (1,560)\n \n $ 42,736\n \n $ (1,625)\n \n \n \n \n\n \n Less than 12 Months\n \n 12 Months or Greater\n \n \n \n \n \n Total\n\n Unrealized\n\n Losses\n \n \n \n \n\n (In millions)\n Fair Value\n \n \n \n Unrealized\n\n Losses\n \n \n \n Fair Value\n \n \n \n Unrealized\n\n Losses\n \n \n \n \n \n Total\n\n Fair Value\n \n \n \n \n \n\n June 30, 2024\n \n \n\n U.S. government and agency securities\n $ 529\n \n $ (12)\n \n $ 45,821\n \n $ (2,936)\n \n $ 46,350\n \n $ (2,948)\n \n \n\n Foreign government bonds\n 79\n \n (2)\n \n 180\n \n (14)\n \n 259\n \n (16)\n \n \n\n Mortgage- and asset-backed securities\n 201\n \n (1)\n \n 409\n \n (34)\n \n 610\n \n (35)\n \n \n\n Corporate notes and bonds\n 1,310\n \n (9)\n \n 5,779\n \n (310)\n \n 7,089\n \n (319)\n \n \n\n Municipal securities\n 38\n \n (1)\n \n 243\n \n (29)\n \n 281\n \n (30)\n \n \n\n Total\n $ 2,157\n \n $ (25)\n \n $ 52,432\n \n $ (3,323)\n \n $ 54,589\n \n $ (3,348)\n \n \n \nUnrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Management does not believe any remaining unrealized losses represent impairments based on our evaluation of available evidence.\n \nDebt Investment Maturities\n \nThe following table outlines maturities of our debt investments as of June 30, 2025:\n \n \n\n (In millions)\n \n \n Adjusted\n\n Cost Basis\n \n \n \n \n \n Estimated\n\n Fair Value\n \n \n \n \n\n June 30, 2025\n \n \n \n \n \n\n Due in one year or less\n $ 35,108\n \n $ 34,952\n \n \n\n Due after one year through five years\n 42,460\n \n 41,481\n \n \n\n Due after five years through 10 years\n 6,530\n \n 6,424\n \n \n\n Due after 10 years\n 1,491\n \n 1,402\n \n \n\n Total\n $ 85,589\n \n $ 84,259\n \n \n \n \n \nNOTE 5 — DERIVATIVES\n \nWe use derivative instruments to manage risks related to foreign currencies, interest rates, equity prices, and credit; to enhance investment returns; and to facilitate portfolio diversification. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment.\n \nForeign Currencies\n \nCertain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency hedge positions.\n \nForeign currency risks related to certain Euro-denominated debt are hedged using foreign exchange forward contracts that are designated as cash flow hedging instruments.\n \nCertain options and forwards not designated as hedging instruments are also used to manage the variability in foreign exchange rates on certain balance sheet amounts and to manage other foreign currency exposures.\n \nInterest Rate\n \nInterest rate risks related to certain fixed-rate debt are hedged using interest rate swaps that are designated as fair value hedging instruments to effectively convert the fixed interest rates to floating interest rates.\n \nSecurities held in our fixed-income portfolio are subject to different interest rate risks based on their maturities. We manage the average maturity of our fixed-income portfolio to achieve economic returns that correlate to certain broad-based fixed-income indices using option, futures, and swap contracts. These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below.\n \nEquity\n \nSecurities held in our equity investments portfolio are subject to market price risk. At times, we may hold options, futures, and swap contracts. These contracts are not designated as hedging instruments.\n \nCredit\n \nOur fixed-income portfolio is diversified and consists primarily of investment-grade securities. We use credit default swap contracts to manage credit exposures relative to broad-based indices and to facilitate portfolio diversification. These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables below.\n \nCredit-Risk-Related Contingent Features\n \nCertain counterparty agreements for derivative instruments contain provisions that require our issued and outstanding long-term unsecured debt to maintain an investment grade credit rating and require us to maintain minimum liquidity of $1.0 billion. To the extent we fail to meet these requirements, we will be required to post collateral, similar to the standard convention related to over-the-counter derivatives. As of June 30, 2025, our long-term unsecured debt rating was AAA, and cash investments were in excess of $1.0 billion. As a result, no collateral was required to be posted.\n \nThe following table presents the notional amounts of our outstanding derivative instruments measured in U.S. dollar equivalents:\n \n \n\n (In millions)\n \n \n June 30,\n\n 2025\n \n \n \n \n \n June 30,\n\n 2024\n \n \n \n \n\n Designated as Hedging Instruments\n \n \n \n \n \n\n Foreign exchange contracts purchased\n $ 1,492\n \n $ 1,492\n \n \n\n Interest rate contracts purchased\n 1,150\n \n 1,100\n \n \n\n Not Designated as Hedging Instruments\n \n \n \n \n \n\n Foreign exchange contracts purchased\n 15,214\n \n 7,167\n \n \n\n Foreign exchange contracts sold\n 43,307\n \n 31,793\n \n \n\n Equity contracts purchased\n 5,434\n \n 4,016\n \n \n\n Equity contracts sold\n 2,189\n \n 2,165\n \n \n\n Other contracts purchased\n 2,769\n \n 2,113\n \n \n\n Other contracts sold\n 1,242\n \n 811\n \n \n \nFair Values of Derivative Instruments\n \nThe following table presents our derivative instruments:\n \n \n\n (In millions)\n \n \n Derivative\n\n Assets\n \n \n \n \n \n Derivative\n\n Liabilities\n \n \n \n \n \n Derivative\n\n Assets\n \n \n \n \n \n Derivative\n\n Liabilities\n \n \n \n \n\n \n \n \n \n \n June 30,\n\n 2025\n \n \n \n \n \n \n \n June 30,\n\n 2024\n \n \n \n \n\n Designated as Hedging Instruments\n \n \n\n Foreign exchange contracts\n $ 89\n \n $ (44)\n \n $ 24\n \n $ (76)\n \n \n\n Interest rate contracts\n 15\n \n 0\n \n 19\n \n 0\n \n \n\n Not Designated as Hedging Instruments\n \n \n\n Foreign exchange contracts\n 248\n \n (809)\n \n 213\n \n (230)\n \n \n\n Equity contracts\n 385\n \n (983)\n \n 63\n \n (491)\n \n \n\n Other contracts\n 21\n \n (1)\n \n 12\n \n (3)\n \n \n\n Gross amounts of derivatives\n 758\n \n (1,837)\n \n 331\n \n (800)\n \n \n\n Gross amounts of derivatives offset in the balance sheets\n (258)\n \n 260\n \n (151)\n \n 152\n \n \n\n Cash collateral received\n 0\n \n (99)\n \n 0\n \n (104)\n \n \n\n Net amounts of derivatives\n $ 500\n \n $ (1,676)\n \n $ 180\n \n $ (752)\n \n \n\n Reported as\n \n \n\n Short-term investments\n $ 10\n \n $ 0\n \n $ 12\n \n $ 0\n \n \n\n Other current assets\n 201\n \n 0\n \n 149\n \n 0\n \n \n\n Equity and other investments\n 272\n \n 0\n \n 0\n \n 0\n \n \n\n Other long-term assets\n 17\n \n 0\n \n 19\n \n 0\n \n \n\n Other current liabilities\n 0\n \n (1,639)\n \n 0\n \n (401)\n \n \n\n Other long-term liabilities\n 0\n \n (37)\n \n 0\n \n (351)\n \n \n\n Total\n $ 500\n \n $ (1,676)\n \n $ 180\n \n $ (752)\n \n \n \nGross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected to offset were $452 million and $1.8 billion, respectively, as of June 30, 2025, and $304 million and $800 million, respectively, as of June 30, 2024.\n \nThe following table presents the fair value of our derivatives instruments on a gross basis:\n \n \n\n (In millions)\n Level 1\n \n Level 2\n \n Level 3\n \n Total\n \n \n\n June 30, 2025\n \n \n\n Derivative assets\n $ 1\n \n $ 474\n \n $ 283\n \n $ 758\n \n \n\n Derivative liabilities\n 0\n \n (1,832)\n \n (5)\n \n (1,837)\n \n \n\n June 30, 2024\n \n \n\n Derivative assets\n 0\n \n 327\n \n 4\n \n 331\n \n \n\n Derivative liabilities\n (1)\n \n (799)\n \n 0\n \n (800)\n \n \n \nGains (losses) on derivative instruments recognized in other income (expense), net were as follows:\n \n \n\n (In millions)\n \n \n\n Year Ended June 30,\n \n 2025\n \n 2024\n \n 2023\n \n \n\n Designated as Fair Value Hedging Instruments\n \n \n\n Interest rate contracts\n \n \n\n Derivatives\n \n $ 5\n \n $ (23)\n \n $ (65)\n \n \n\n Hedged items\n \n (45)\n \n (25)\n \n 38\n \n \n\n Designated as Cash Flow Hedging Instruments\n \n \n\n Foreign exchange contracts\n \n \n\n Amount reclassified from accumulated other comprehensive loss\n \n 103\n \n (48)\n \n 61\n \n \n\n Not Designated as Hedging Instruments\n \n \n\n Foreign exchange contracts\n \n (938)\n \n 367\n \n (73)\n \n \n\n Equity contracts\n \n (266)\n \n (177)\n \n (420)\n \n \n\n Other contracts\n \n 21\n \n (15)\n \n (41)\n \n \n \nGains (losses), net of tax, on derivative instruments recognized in our consolidated comprehensive income statements were as follows:\n \n \n\n (In millions)\n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Designated as Cash Flow Hedging Instruments\n \n \n\n Foreign exchange contracts\n \n \n\n Included in effectiveness assessment\n $ 77\n \n $ (14)\n \n $ 34\n \n \n \n \n \nNOTE 6 — PROPERTY AND EQUIPMENT\n \nThe components of property and equipment were as follows:\n \n \n\n (In millions)\n \n \n\n June 30,\n 2025\n \n 2024\n \n \n\n Land\n $ 9,338\n \n $ 8,163\n \n \n\n Buildings and improvements\n 137,921\n \n 93,943\n \n \n\n Leasehold improvements\n 12,117\n \n 9,594\n \n \n\n Computer equipment and software\n 132,836\n \n 93,780\n \n \n\n Furniture and equipment\n 6,407\n \n 6,532\n \n \n\n Total, at cost\n 298,619\n \n 212,012\n \n \n\n Accumulated depreciation\n (93,653)\n \n (76,421)\n \n \n\n Total, net\n $ 204,966\n \n $ 135,591\n \n \n \nDuring fiscal years 2025, 2024, and 2023, depreciation expense was $22.0 billion, $15.2 billion, and $11.0 billion, respectively.\n \nAs of June 30, 2025, 2024, and 2023, purchases of property and equipment remaining in accounts payable were $6.9 billion, $4.3 billion, and $3.8 billion, respectively. As of June 30, 2025, we have committed $32.1 billion for the construction of new buildings, building improvements, and leasehold improvements, primarily related to datacenters.\n \n \n \nNOTE 7 — BUSINESS COMBINATIONS\n \nActivision Blizzard, Inc.\n \nOn October 13, 2023, we completed our acquisition of Activision Blizzard, Inc. (“Activision Blizzard”) for a total purchase price of $75.4 billion, consisting primarily of cash. Activision Blizzard is a leader in game development and an interactive entertainment content publisher. The acquisition will accelerate the growth in our gaming business across mobile, PC, console, and cloud gaming. The financial results of Activision Blizzard have been included in our consolidated financial statements since the date of the acquisition. Activision Blizzard is reported as part of our More Personal Computing segment.\n \nThe allocation of the purchase price to the assets acquired and liabilities assumed was completed as of September 30, 2024. The major classes of assets and liabilities to which we have allocated the purchase price were as follows:\n \n \n\n (In millions)\n \n \n\n Cash and cash equivalents\n $ 12,976\n \n \n\n Goodwill\n 51,001\n \n \n\n Intangible assets\n 21,969\n \n \n\n Other assets\n 2,503\n \n \n\n Long-term debt\n (2,799)\n \n \n\n Long-term income taxes\n (1,946)\n \n \n\n Deferred income taxes\n (4,676)\n \n \n\n Other liabilities\n (3,620)\n \n \n\n Total purchase price\n $ 75,408\n \n \n \nGoodwill was assigned to our More Personal Computing segment. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of Activision Blizzard. Substantially all of the goodwill is expected to be non-deductible for income tax purposes.\n \nFollowing are the details of the purchase price allocated to the intangible assets acquired:\n \n \n\n (In millions, except average life)\n Amount\n \n \n \n Weighted\n\n Average Life\n \n \n \n \n\n Marketing-related\n $ 11,619\n \n 24 years\n \n \n\n Technology-based\n 9,689\n \n 4 years\n \n \n\n Customer-related\n 661\n \n 4 years\n \n \n\n Fair value of intangible assets acquired\n $ 21,969\n \n 15 years\n \n \n \nFollowing are the supplemental consolidated financial results of Microsoft Corporation on an unaudited pro forma basis, as if the acquisition had been consummated on July 1, 2022:\n \n \n\n (In millions, except per share amounts)\n \n \n\n Year Ended June 30,\n \n 2024\n \n 2023\n \n \n\n Revenue\n \n $ 247,442\n \n $ 219,790\n \n \n\n Net income\n \n 88,308\n \n 71,383\n \n \n\n Diluted earnings per share\n \n 11.82\n \n 9.55\n \n \n \nThese pro forma results were based on estimates and assumptions, which we believe are reasonable. They are not the results that would have been realized had we been a combined company during the periods presented and are not necessarily indicative of our consolidated results of operations in future periods. The pro forma results include adjustments related to purchase accounting, primarily amortization of intangible assets. Acquisition costs and other nonrecurring charges were immaterial and are included in the earliest period presented.\n \n \n \nNOTE 8 — GOODWILL\n \nChanges in the carrying amount of goodwill were as follows:\n \n \n\n (In millions)\n \n \n June 30,\n\n 2023\n \n \n \n Acquisitions\n \n Other\n \n \n \n June 30,\n\n 2024\n \n \n \n Acquisitions\n \n Other\n \n \n \n June 30,\n\n 2025\n \n \n \n \n\n Productivity and Business Processes\n $ 31,359\n \n $ 0\n \n $ 2\n \n $ 31,361\n \n $ 0\n \n $ 96\n \n $ 31,457\n \n \n\n Intelligent Cloud\n 25,676\n \n 0\n \n (28)\n \n 25,648\n \n 0\n \n 41\n \n 25,689\n \n \n\n More Personal Computing\n 10,851\n \n 51,235\n \n 125\n \n 62,211\n \n 0\n \n 152\n \n 62,363\n \n \n\n Total\n $ 67,886\n \n $ 51,235\n \n $ 99\n \n $ 119,220\n \n $ 0\n \n $ 289\n \n $ 119,509\n \n \n \nWe have recast certain prior period amounts to conform to the way we internally manage and monitor our business. Refer to Note 1 – Accounting Policies for further information.\n \nThe measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months. Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.\n \nAny change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are presented as “Other” in the table above. Also included in “Other” are business dispositions and transfers between segments due to reorganizations, as applicable.\n \nAs discussed in Note 1 – Accounting Policies, during the first quarter of fiscal year 2025 we made changes to our segments. These segment changes also resulted in changes to our reporting units. We reallocated goodwill across impacted reporting units using a relative fair value approach. In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to the reallocation and determined that no impairment existed.\n \nGoodwill Impairment\n \nWe test goodwill for impairment annually on May 1 at the reporting unit level, primarily using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital. We believe use of a discounted cash flow approach is the most reliable indicator of the fair values of the businesses.\n \nNo instances of impairment were identified in our May 1, 2025, May 1, 2024, or May 1, 2023 tests. As of June 30, 2025 and 2024, accumulated goodwill impairment was $11.3 billion.\n \n \n \nNOTE 9 — INTANGIBLE ASSETS\n \nThe components of intangible assets, all of which are finite-lived, were as follows:\n \n \n\n (In millions)\n \n \n Gross\n\n Carrying\n\n Amount\n \n \n \n \n \n Accumulated\n\n Amortization\n \n \n \n \n \n Net\n\n Carrying\n\n Amount\n \n \n \n \n \n Gross\n\n Carrying\n\n Amount\n \n \n \n \n \n Accumulated\n\n Amortization\n \n \n \n \n \n Net\n\n Carrying\n\n Amount\n \n \n \n \n\n June 30,\n \n \n \n \n 2025\n \n \n \n \n \n 2024\n \n \n\n Marketing-related\n $ 16,502\n \n $ (3,901)\n \n $ 12,601\n \n $ 16,500\n \n $ (3,101)\n \n $ 13,399\n \n \n\n Technology-based\n 22,560\n \n (14,959)\n \n 7,601\n \n 21,913\n \n (10,741)\n \n 11,172\n \n \n\n Customer-related\n 4,278\n \n (2,050)\n \n 2,228\n \n 6,038\n \n (3,051)\n \n 2,987\n \n \n\n Contract-based\n 217\n \n (43)\n \n 174\n \n 58\n \n (19)\n \n 39\n \n \n\n Total\n $ 43,557\n \n $ (20,953)\n \n $ 22,604\n \n $ 44,509\n \n $ (16,912)\n \n $ 27,597\n \n \n \nNo material impairments of intangible assets were identified during fiscal years 2025, 2024, or 2023. We estimate that we have no significant residual value related to our intangible assets.\n \nThe components of intangible assets acquired during the periods presented were as follows:\n \n \n\n (In millions)\n \n Amount\n \n \n Weighted\n\n Average Life\n \n \n \n Amount\n \n \n Weighted\n\n Average Life\n \n \n \n \n\n Year Ended June 30,\n \n 2025\n \n \n 2024\n \n \n \n\n Marketing-related\n \n $ 13\n 10 years\n \n $ 11,619\n 24 years\n \n \n\n Technology-based\n \n 912\n 9 years\n \n 10,947\n 4 years\n \n \n\n Customer-related\n \n 0\n 0 years\n \n 660\n 4 years\n \n \n\n Contract-based\n \n 171\n 5 years\n \n 38\n 4 years\n \n \n\n Total\n \n $ 1,096\n 9 years\n \n $ 23,264\n 14 years\n \n \n \nIntangible assets amortization expense was $6.0 billion, $4.8 billion, and $2.5 billion for fiscal years 2025, 2024, and 2023, respectively.\n \nThe following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2025:\n \n \n\n (In millions)\n \n \n \n\n Year Ending June 30,\n \n \n \n\n 2026\n $ 4,594\n \n \n\n 2027\n 2,901\n \n \n\n 2028\n 2,034\n \n \n\n 2029\n 1,851\n \n \n\n 2030\n 1,382\n \n \n\n Thereafter\n 9,842\n \n \n\n Total\n $ 22,604\n \n \n \n \n \nNOTE 10 — DEBT\n \nShort-term Debt\n \nAs of June 30, 2025, we had no commercial paper issued or outstanding. As of June 30, 2024, we had $6.7 billion of commercial paper issued and outstanding, with a weighted average interest rate of 5.4% and maturities ranging from 28 days to 152 days. The estimated fair value of this commercial paper approximates its carrying value.\n \nLong-term Debt\n \nThe components of long-term debt were as follows:\n \n \n\n (In millions, issuance by calendar year)\n \n \n Maturities\n\n (calendar year)\n \n \n \n \n \n Stated Interest\n\n Rate\n \n \n \n \n \n Effective\n\n Interest\n\n Rate\n \n \n \n \n \n June 30,\n\n 2025\n \n \n \n \n \n June 30,\n\n 2024\n \n \n \n \n\n 2009 issuance of $3.8 billion\n 2039\n \n 5.20%\n \n 5.24%\n \n $ 520\n \n $ 520\n \n \n\n 2010 issuance of $4.8 billion\n 2040\n \n 4.50%\n \n 4.57%\n \n 486\n \n 486\n \n \n\n 2011 issuance of $2.3 billion\n 2041\n \n 5.30%\n \n 5.36%\n \n 718\n \n 718\n \n \n\n 2012 issuance of $2.3 billion\n 2042\n \n 3.50%\n \n 3.57%\n \n 454\n \n 454\n \n \n\n 2013 issuance of $5.2 billion\n 2043\n \n 3.75%–4.88%\n \n 3.83%–4.92%\n \n 314\n \n 314\n \n \n\n 2013 issuance of €4.1 billion\n 2028–2033\n \n 2.63%–3.13%\n \n 2.69%–3.22%\n \n 2,700\n \n 2,465\n \n \n\n 2015 issuance of $23.8 billion\n 2025–2055\n \n 3.13%–4.75%\n \n 3.18%–4.78%\n \n 7,555\n \n 9,805\n \n \n\n 2016 issuance of $19.8 billion\n 2026–2056\n \n 2.40%–3.95%\n \n 2.46%–4.03%\n \n 7,930\n \n 7,930\n \n \n\n 2017 issuance of $17.1 billion\n 2026–2057\n \n 3.30%–4.50%\n \n 3.38%–5.49%\n \n 6,833\n \n 6,833\n \n \n\n 2020 issuance of $10.1 billion\n 2030–2060\n \n 1.35%–2.68%\n \n 2.53%–5.43%\n \n 10,111\n \n 10,111\n \n \n\n 2021 issuance of $8.2 billion\n 2052–2062\n \n 2.92%–3.04%\n \n 2.92%–3.04%\n \n 8,185\n \n 8,185\n \n \n\n 2023 issuance of $0.1 billion\n 2026–2050\n \n 1.35%–4.50%\n \n 5.16%–5.49%\n \n 56\n \n 56\n \n \n\n 2024 issuance of $3.3 billion\n 2026–2050\n \n 1.35%–4.50%\n \n 5.16%–5.49%\n \n 3,344\n \n 3,344\n \n \n\n Total face value\n 49,206\n \n 51,221\n \n \n\n Unamortized discount and issuance costs\n (1,155)\n \n (1,227)\n \n \n\n Hedge fair value adjustments (a)\n (36)\n \n (81)\n \n \n\n Premium on debt exchange\n (4,864)\n \n (4,976)\n \n \n\n Total debt\n 43,151\n \n 44,937\n \n \n\n Current portion of long-term debt\n (2,999)\n \n (2,249)\n \n \n\n Long-term debt\n $ 40,152\n \n $ 42,688\n \n \n \n \nRefer to Note 5 – Derivatives for further information on the interest rate swaps related to fixed-rate debt.\n \n \nAs of June 30, 2025 and 2024, the estimated fair value of long-term debt, including the current portion, was $40.4 billion and $42.3 billion, respectively. The estimated fair values are based on Level 2 inputs.\n \nDebt in the table above is comprised of senior unsecured obligations and ranks equally with our other outstanding obligations. Interest is paid semi-annually, except for the Euro-denominated debt, which is paid annually. Cash paid for interest on our debt for fiscal years 2025, 2024, and 2023 was $1.6 billion, $1.7 billion, and $1.7 billion, respectively.\n \nThe following table outlines maturities of our long-term debt, including the current portion, as of June 30, 2025:\n \n \n\n (In millions)\n \n \n \n\n Year Ending June 30,\n \n \n \n\n 2026\n $ 3,000\n \n \n\n 2027\n 9,250\n \n \n\n 2028\n 0\n \n \n\n 2029\n 2,054\n \n \n\n 2030\n 0\n \n \n\n Thereafter\n 34,902\n \n \n\n Total\n $ 49,206\n \n \n \n \n \nNOTE 11 — INCOME TAXES\n \nProvision for Income Taxes\n \nThe components of the provision for income taxes were as follows:\n \n \n\n (In millions)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Current Taxes\n \n \n \n \n \n \n \n\n U.S. federal\n $ 14,086\n \n $ 12,165\n \n $ 14,009\n \n \n\n U.S. state and local\n 3,342\n \n 2,366\n \n 2,322\n \n \n\n Foreign\n 11,423\n \n 9,858\n \n 6,678\n \n \n\n Current taxes\n $ 28,851\n \n $ 24,389\n \n $ 23,009\n \n \n\n Deferred Taxes\n \n \n \n \n \n \n \n\n U.S. federal\n $ (6,250)\n \n $ (4,791)\n \n $ (6,146)\n \n \n\n U.S. state and local\n (1,087)\n \n (379)\n \n (477)\n \n \n\n Foreign\n 281\n \n 432\n \n 564\n \n \n\n Deferred taxes\n $ (7,056)\n \n $ (4,738)\n \n $ (6,059)\n \n \n\n Provision for income taxes\n $ 21,795\n \n $ 19,651\n \n $ 16,950\n \n \n \nU.S. and foreign components of income before income taxes were as follows:\n \n \n\n (In millions)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n U.S.\n $ 69,212\n \n $ 62,886\n \n $ 52,917\n \n \n\n Foreign\n 54,415\n \n 44,901\n \n 36,394\n \n \n\n Income before income taxes\n $ 123,627\n \n $ 107,787\n \n $ 89,311\n \n \n \nEffective Tax Rate\n \nThe items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate were as follows:\n \n \n\n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Federal statutory rate\n 21.0%\n \n 21.0%\n \n 21.0%\n \n \n\n Effect of:\n \n \n \n \n \n \n \n\n Foreign earnings taxed at lower rates\n (1.5)%\n \n (1.4)%\n \n (1.8)%\n \n \n\n Foreign-derived intangible income deduction\n (1.0)%\n \n (1.1)%\n \n (1.3)%\n \n \n\n State income taxes, net of federal benefit\n 1.5%\n \n 1.5%\n \n 1.6%\n \n \n\n Research and development credit\n (1.1)%\n \n (1.1)%\n \n (1.1)%\n \n \n\n Excess tax benefits relating to stock-based compensation\n (0.9)%\n \n (1.1)%\n \n (0.7)%\n \n \n\n Interest, net\n 1.0%\n \n 1.1%\n \n 0.8%\n \n \n\n Other reconciling items, net\n (1.4)%\n \n (0.7)%\n \n 0.5%\n \n \n\n Effective rate\n 17.6%\n \n 18.2%\n \n 19.0%\n \n \n \nThe decrease from the federal statutory rate in fiscal years 2025, 2024, and 2023 is primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland. In fiscal years 2025, 2024, and 2023, our foreign regional operating center in Ireland, which is taxed at a rate lower than the U.S. rate, generated 81%, 83%, and 81% of our foreign income before tax. Other reconciling items, net consists primarily of tax credits and the U.S. global intangible low-taxed income tax, and in fiscal year 2024, includes tax benefits from tax law changes. In fiscal year 2024, tax benefits from tax law changes primarily relate to the delay of the effective date of final foreign tax credit regulations. In fiscal years 2025, 2024, and 2023, there were no individually significant other reconciling items.\n \nThe decrease in our effective tax rate for fiscal year 2025 compared to fiscal year 2024 was due to changes in the mix of our earnings and tax expenses between the U.S. and foreign countries. The decrease in our effective tax rate for fiscal year 2024 compared to fiscal year 2023 was primarily due to tax benefits from tax law changes, including the delay of the effective date of final foreign tax credit regulations.\n \nThe components of the deferred income tax assets and liabilities were as follows:\n \n \n\n (In millions)\n \n \n \n \n \n\n June 30,\n 2025\n \n 2024\n \n \n\n Deferred Income Tax Assets\n \n \n \n \n \n\n Stock-based compensation expense\n $ 909\n \n $ 765\n \n \n\n Accruals, reserves, and other expenses\n 5,050\n \n 4,381\n \n \n\n Loss and credit carryforwards\n 2,114\n \n 1,741\n \n \n\n Amortization\n 4,118\n \n 4,159\n \n \n\n Leasing liabilities\n 12,874\n \n 6,504\n \n \n\n Unearned revenue\n 4,324\n \n 3,717\n \n \n\n Book/tax basis differences in investments and debt\n 303\n \n 9\n \n \n\n Capitalized research and development\n 16,891\n \n 11,442\n \n \n\n Other\n 529\n \n 426\n \n \n\n Deferred income tax assets\n 47,112\n \n 33,144\n \n \n\n Less valuation allowance\n (1,169)\n \n (1,045)\n \n \n\n Deferred income tax assets, net of valuation allowance\n $ 45,943\n \n $ 32,099\n \n \n\n Deferred Income Tax Liabilities\n \n \n \n \n \n\n Leasing assets\n $ (12,696)\n \n $ (6,503)\n \n \n\n Depreciation\n (5,699)\n \n (3,940)\n \n \n\n Deferred tax on foreign earnings\n (1,148)\n \n (1,837)\n \n \n\n Other\n (127)\n \n (167)\n \n \n\n Deferred income tax liabilities\n $ (19,670)\n \n $ (12,447)\n \n \n\n Net deferred income tax assets\n $ 26,273\n \n $ 19,652\n \n \n\n Reported As\n \n \n \n \n \n\n Other long-term assets\n $ 29,108\n \n $ 22,270\n \n \n\n Long-term deferred income tax liabilities\n (2,835)\n \n (2,618)\n \n \n\n Net deferred income tax assets\n $ 26,273\n \n $ 19,652\n \n \n \nDeferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or recovered.\n \nAs of June 30, 2025, we had federal, state, and foreign net operating loss carryforwards of $390 million, $836 million, and $2.6 billion, respectively. The federal and state net operating loss carryforwards have varying expiration dates ranging from fiscal year 2026 to 2045 or indefinite carryforward periods, if not utilized. The majority of our foreign net operating loss carryforwards do not expire. Certain acquired net operating loss carryforwards are subject to an annual limitation but are expected to be realized with the exception of those which have a valuation allowance. As of June 30, 2025, we had $816 million federal capital loss carryforwards for U.S. tax purposes. The federal capital loss carryforwards will expire in fiscal year 2030 if not utilized.\n \nThe valuation allowance disclosed in the table above relates to the foreign net operating loss carryforwards, federal capital loss carryforwards, and other net deferred tax assets that may not be realized.\n \nIncome taxes paid, net of refunds, were $28.7 billion, $23.4 billion, and $23.1 billion in fiscal years 2025, 2024, and 2023, respectively.\n \nUncertain Tax Positions\n \nGross unrecognized tax benefits related to uncertain tax positions as of June 30, 2025, 2024, and 2023, were $24.7 billion, $22.8 billion, and $17.1 billion, respectively, which were primarily included in long-term income taxes in our consolidated balance sheets. If recognized, the resulting tax benefit would affect our effective tax rates for fiscal years 2025, 2024, and 2023 by $21.2 billion, $19.6 billion, and $14.4 billion, respectively.\n \nAs of June 30, 2025, 2024, and 2023, we had accrued interest expense related to uncertain tax positions of $8.2 billion, $6.8 billion, and $5.2 billion, respectively, net of income tax benefits. The provision for income taxes for fiscal years 2025, 2024, and 2023 included interest expense related to uncertain tax positions of $1.3 billion, $1.5 billion, and $918 million, respectively, net of income tax benefits.\n \nThe aggregate changes in the gross unrecognized tax benefits related to uncertain tax positions were as follows:\n \n \n\n (In millions)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Beginning unrecognized tax benefits\n $ 22,760\n \n $ 17,120\n \n $ 15,593\n \n \n\n Decreases related to settlements\n (240)\n \n (76)\n \n (329)\n \n \n\n Increases for tax positions related to the current year\n 2,066\n \n 1,903\n \n 1,051\n \n \n\n Increases for tax positions related to prior years\n 468\n \n 4,289\n \n 870\n \n \n\n Decreases for tax positions related to prior years\n (300)\n \n (464)\n \n (60)\n \n \n\n Decreases due to lapsed statutes of limitations\n (25)\n \n (12)\n \n (5)\n \n \n\n Ending unrecognized tax benefits\n $ 24,729\n \n $ 22,760\n \n $ 17,120\n \n \n \nWe remain under audit by the IRS for tax years 2014 to 2017. With respect to the audit for tax years 2004 to 2013, on September 26, 2023, we received Notices of Proposed Adjustment (“NOPAs”) from the IRS. The primary issues in the NOPAs relate to intercompany transfer pricing. In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest. As of June 30, 2025, we believe our allowances for income tax contingencies are adequate. We disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals office and, if necessary, judicial proceedings. We do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our income tax contingencies for these issues within the next 12 months.\n \nWe are subject to income tax in many jurisdictions outside the U.S., some of which are currently under audit by local tax authorities. The resolution of these audits is not expected to be material to our consolidated financial statements. Our operations in Ireland remain subject to examination for tax years 2020 and thereafter.\n \n \n \nNOTE 12 — UNEARNED REVENUE\n \nUnearned revenue by segment was as follows:\n \n \n\n (In millions)\n \n \n \n \n \n\n June 30,\n 2025\n \n 2024\n \n \n\n Productivity and Business Processes\n $ 50,567\n \n $ 43,599\n \n \n\n Intelligent Cloud\n 14,022\n \n 13,683\n \n \n\n More Personal Computing\n 2,676\n \n 2,902\n \n \n\n Total\n $ 67,265\n \n $ 60,184\n \n \n \nWe have recast certain prior period amounts to conform to the way we internally manage and monitor our business. Refer to Note 1 – Accounting Policies for further information.\n \nChanges in unearned revenue were as follows:\n \n \n\n (In millions)\n \n \n \n \n\n Year Ended June 30, 2025\n \n \n \n \n\n Balance, beginning of period\n \n $ 60,184\n \n \n\n Deferral of revenue\n \n 186,957\n \n \n\n Recognition of unearned revenue\n \n (179,876)\n \n \n\n Balance, end of period\n \n $ 67,265\n \n \n \nRevenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $375 billion as of June 30, 2025, of which $368 billion is related to the commercial portion of revenue. We expect to recognize approximately 40% of our total company remaining performance obligation revenue over the next 12 months and the remainder thereafter.\n \n \n \nNOTE 13 — LEASES\n \nWe have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. Our leases have remaining lease terms of less than 1 year to 20 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.\n \nThe components of lease expense were as follows:\n \n \n\n (In millions)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Operating lease cost\n $ 5,524\n \n $ 3,555\n \n $ 2,875\n \n \n\n Finance lease cost:\n \n \n \n \n \n \n \n\n Amortization of right-of-use assets\n $ 3,408\n \n $ 1,800\n \n $ 1,352\n \n \n\n Interest on lease liabilities\n 1,417\n \n 734\n \n 501\n \n \n\n Total finance lease cost\n $ 4,825\n \n $ 2,534\n \n $ 1,853\n \n \n\n Supplemental cash flow information related to leases was as follows:\n \n \n\n (In millions)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Cash paid for amounts included in the measurement of lease liabilities:\n \n \n \n \n \n \n \n\n Operating cash flows from operating leases\n $ 4,931\n \n $ 3,550\n \n $ 2,706\n \n \n\n Operating cash flows from finance leases\n 1,372\n \n 734\n \n 501\n \n \n\n Financing cash flows from finance leases\n 2,283\n \n 1,286\n \n 1,056\n \n \n\n Right-of-use assets obtained in exchange for lease obligations:\n \n \n \n \n \n \n \n\n Operating leases\n 7,826\n \n 6,703\n \n 3,514\n \n \n\n Finance leases\n 20,511\n \n 11,633\n \n 3,128\n \n \n \nSupplemental balance sheet information related to leases was as follows:\n \n \n\n (In millions, except lease term and discount rate)\n \n \n \n \n \n\n June 30,\n 2025\n \n 2024\n \n \n\n Operating Leases\n \n \n \n \n \n\n Operating lease right-of-use assets\n $ 24,823\n \n $ 18,961\n \n \n\n Other current liabilities\n $ 5,424\n \n $ 3,580\n \n \n\n Operating lease liabilities\n 17,437\n \n 15,497\n \n \n\n Total operating lease liabilities\n $ 22,861\n \n $ 19,077\n \n \n\n Finance Leases\n \n \n \n \n \n\n Property and equipment, at cost\n $ 53,876\n \n $ 32,248\n \n \n\n Accumulated depreciation\n (9,861)\n \n (6,386)\n \n \n\n Property and equipment, net\n $ 44,015\n \n $ 25,862\n \n \n\n Other current liabilities\n $ 3,172\n \n $ 2,349\n \n \n\n Other long-term liabilities\n 43,000\n \n 24,796\n \n \n\n Total finance lease liabilities\n $ 46,172\n \n $ 27,145\n \n \n\n Weighted Average Remaining Lease Term\n \n \n \n \n \n\n Operating leases\n 6 years\n \n 7 years\n \n \n\n Finance leases\n 13 years\n \n 12 years\n \n \n\n Weighted Average Discount Rate\n \n \n \n \n \n\n Operating leases\n 3.5%\n \n 3.3%\n \n \n\n Finance leases\n 4.2%\n \n 3.9%\n \n \n \nThe following table outlines maturities of our lease liabilities as of June 30, 2025:\n \n \n\n (In millions)\n \n \n \n \n \n\n Year Ending June 30,\n \n \n Operating\n\n Leases\n \n \n \n \n \n Finance\n\n Leases\n \n \n \n \n\n 2026\n $ 6,111\n \n $ 5,008\n \n \n\n 2027\n 5,237\n \n 5,157\n \n \n\n 2028\n 3,495\n \n 5,187\n \n \n\n 2029\n 2,419\n \n 4,521\n \n \n\n 2030\n 2,017\n \n 4,382\n \n \n\n Thereafter\n 6,202\n \n 36,251\n \n \n\n Total lease payments\n 25,481\n \n 60,506\n \n \n\n Less imputed interest\n (2,620)\n \n (14,334)\n \n \n\n Total\n $ 22,861\n \n $ 46,172\n \n \n \nAs of June 30, 2025, we had additional leases, primarily for datacenters, that had not yet commenced of $92.7 billion. These leases will commence between fiscal year 2026 and fiscal year 2031 with lease terms of 1 year to 20 years.\n \n \n \nNOTE 14 — CONTINGENCIES\n \nIrish Data Protection Commission Matter\n \nIn 2018, the Irish Data Protection Commission (“IDPC”) began investigating a complaint against LinkedIn as to whether LinkedIn’s targeted advertising practices violated the recently implemented European Union General Data Protection Regulation (“GDPR”). Microsoft cooperated throughout the period of inquiry. In October 2024, the IDPC provided LinkedIn with a final decision alleging GDPR violations and assessing a fine. In November 2024, LinkedIn appealed the final decision to the Irish courts, and the next hearing is scheduled for December 2025.\n \nOther Contingencies\n \nWe also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact in our consolidated financial statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.\n \nAs of June 30, 2025, we accrued aggregate legal liabilities of $541 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $600 million in aggregate beyond recorded amounts are reasonably possible. Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact in our consolidated financial statements for the period in which the effects become reasonably estimable.\n \n \n \nNOTE 15 — STOCKHOLDERS’ EQUITY\n \nShares Outstanding\n \nShares of common stock outstanding were as follows:\n \n \n\n (In millions)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Balance, beginning of year\n 7,434\n \n 7,432\n \n 7,464\n \n \n\n Issued\n 31\n \n 34\n \n 37\n \n \n\n Repurchased\n (31)\n \n (32)\n \n (69)\n \n \n\n Balance, end of year\n 7,434\n \n 7,434\n \n 7,432\n \n \n \nShare Repurchases\n \nOn September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $60.0 billion in share repurchases. This share repurchase program commenced in November 2021 and was completed in April 2025.\n \nOn 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. As of June 30, 2025, $57.3 billion remained of this $60.0 billion share repurchase program.\n \nWe repurchased the following shares of common stock under the share repurchase programs:\n \n \n\n (In millions)\n Shares\n \n Amount\n \n Shares\n \n Amount\n \n Shares\n \n Amount\n \n \n\n Year Ended June 30,\n 2025\n 2024\n 2023\n \n \n\n First Quarter\n 7\n \n $ 2,800\n \n 11\n \n $ 3,560\n \n 17\n \n $ 4,600\n \n \n\n Second Quarter\n 8\n \n 3,500\n \n 7\n \n 2,800\n \n 20\n \n 4,600\n \n \n\n Third Quarter\n 8\n \n 3,500\n \n 7\n \n 2,800\n \n 18\n \n 4,600\n \n \n\n Fourth Quarter\n 8\n \n 3,200\n \n 7\n \n 2,800\n \n 14\n \n 4,600\n \n \n\n Total\n 31\n \n $ 13,000\n \n 32\n \n $ 11,960\n \n 69\n \n $ 18,400\n \n \n \nAll repurchases were made using cash resources. Shares repurchased during the fourth quarter of fiscal year 2025 were under the share repurchase programs approved on September 14, 2021 and September 16, 2024. All other shares repurchased were under the share repurchase program approved on September 14, 2021. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $5.4 billion, $5.3 billion, and $3.8 billion for fiscal years 2025, 2024, and 2023, respectively.\n \nDividends\n \nOur Board of Directors declared the following dividends:\n \n \n\n Declaration Date\n Record Date\n Payment Date\n \n \n \n Dividend\n\n Per Share\n \n \n \n Amount\n \n \n\n Fiscal Year 2025\n \n \n \n \n \n (In millions)\n \n \n\n September 16, 2024\n November 21, 2024\n December 12, 2024\n \n $ 0.83\n \n $ 6,170\n \n \n\n December 3, 2024\n February 20, 2025\n March 13, 2025\n \n 0.83\n \n 6,169\n \n \n\n March 11, 2025\n May 15, 2025\n June 12, 2025\n \n 0.83\n \n 6,169\n \n \n\n June 10, 2025\n August 21, 2025\n September 11, 2025\n \n 0.83\n \n 6,170\n \n \n\n Total\n \n \n \n $ 3.32\n \n $ 24,678\n \n \n\n Fiscal Year 2024\n \n \n \n \n \n \n \n \n\n September 19, 2023\n November 16, 2023\n December 14, 2023\n \n $ 0.75\n \n $ 5,574\n \n \n\n November 28, 2023\n February 15, 2024\n March 14, 2024\n \n 0.75\n \n 5,573\n \n \n\n March 12, 2024\n May 16, 2024\n June 13, 2024\n \n 0.75\n \n 5,574\n \n \n\n June 12, 2024\n August 15, 2024\n September 12, 2024\n \n 0.75\n \n 5,574\n \n \n\n Total\n \n \n \n $ 3.00\n \n $ 22,295\n \n \n \nThe dividend declared on June 10, 2025 was included in other current liabilities as of June 30, 2025.\n \n \n \nNOTE 16 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)\n \nThe following table summarizes the changes in accumulated other comprehensive income (loss) by component:\n \n \n\n (In millions)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Derivatives\n \n \n \n \n \n \n \n\n Balance, beginning of period\n $ (3)\n \n $ (27)\n \n $ (13)\n \n \n\n Unrealized gains (losses), net of tax of $20, $(4), and $9\n 77\n \n (14)\n \n 34\n \n \n\n Reclassification adjustments for (gains) losses included in other income (expense), net\n (103)\n \n 48\n \n (61)\n \n \n\n Tax expense (benefit) included in provision for income taxes\n 21\n \n (10)\n \n 13\n \n \n\n Amounts reclassified from accumulated other comprehensive loss\n (82)\n \n 38\n \n (48)\n \n \n\n Net change related to derivatives, net of tax of $(1), $6, and $(4)\n (5)\n \n 24\n \n (14)\n \n \n\n Balance, end of period\n $ (8)\n \n $ (3)\n \n $ (27)\n \n \n\n Investments\n \n \n \n \n \n \n \n\n Balance, beginning of period\n $ (2,625)\n \n $ (3,582)\n \n $ (2,138)\n \n \n\n Unrealized gains (losses), net of tax of $411, $247, and $(393)\n 1,560\n \n 915\n \n (1,523)\n \n \n\n Reclassification adjustments for losses included in other income (expense), net\n 17\n \n 53\n \n 99\n \n \n\n Tax benefit included in provision for income taxes\n (3)\n \n (11)\n \n (20)\n \n \n\n Amounts reclassified from accumulated other comprehensive loss\n 14\n \n 42\n \n 79\n \n \n\n Net change related to investments, net of tax of $414, $258, and $(373)\n 1,574\n \n 957\n \n (1,444)\n \n \n\n Balance, end of period\n $ (1,051)\n \n $ (2,625)\n \n $ (3,582)\n \n \n\n Translation Adjustments and Other\n \n \n \n \n \n \n \n\n Balance, beginning of period\n $ (2,962)\n \n $ (2,734)\n \n $ (2,527)\n \n \n\n Translation adjustments and other, net of tax of $8, $0, and $0\n 674\n \n (228)\n \n (207)\n \n \n\n Balance, end of period\n $ (2,288)\n \n $ (2,962)\n \n $ (2,734)\n \n \n\n Accumulated other comprehensive loss, end of period\n $ (3,347)\n \n $ (5,590)\n \n $ (6,343)\n \n \n \n \n \nNOTE 17 — EMPLOYEE STOCK AND SAVINGS PLANS\n \nWe grant stock-based compensation to employees and directors. Awards that expire or are canceled without delivery of shares generally become available for issuance under the plans. We issue new shares of Microsoft common stock to satisfy vesting of awards granted under our stock plans. We also have an ESPP for all eligible employees.\n \nStock-based compensation expense and related income tax benefits were as follows:\n \n \n\n (In millions)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Stock-based compensation expense\n $ 11,974\n \n $ 10,734\n \n $ 9,611\n \n \n\n Income tax benefits related to stock-based compensation\n 2,027\n \n 1,826\n \n 1,651\n \n \n \nStock Plans\n \nStock awards entitle the holder to receive shares of Microsoft common stock as the award vests. Stock awards generally vest over a service period of four years or five years.\n \nExecutive Incentive Plan\n \nUnder the Executive Incentive Plan, the Compensation Committee approves stock awards to executive officers and certain senior executives. RSUs generally vest ratably over a service period of four years. PSUs generally vest over a performance period of three years. The number of shares the PSU holder receives is based on the extent to which the corresponding performance goals have been achieved.\n \nActivity for All Stock Plans\n \nThe fair value of stock awards was estimated on the date of grant using the following assumptions:\n \n \n\n \n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Dividends per share (quarterly amounts)\n $ 0.75 – 0.83\n \n $ 0.68 – 0.75\n \n $ 0.62 – 0.68\n \n \n\n Interest rates\n 3.4% – 5.5%\n \n 3.8% – 5.6%\n \n 2.0% – 5.4%\n \n \n \nDuring fiscal year 2025, the following activity occurred under our stock plans:\n \n \n\n Shares\n \n \n \n Weighted Average\n\n Grant-Date Fair Value\n \n \n \n \n\n \n \n (In millions)\n \n \n \n \n\n Stock Awards\n \n \n \n \n \n \n\n Nonvested balance, beginning of year\n \n 88\n \n $ 292.28\n \n \n\n Granted (a)\n \n 39\n \n 413.90\n \n \n\n Vested\n \n (38)\n \n 293.25\n \n \n\n Forfeited\n \n (7)\n \n 317.23\n \n \n\n Nonvested balance, end of year\n \n 82\n \n $ 347.44\n \n \n \n \nIncludes 1 million of PSUs granted at target and performance adjustments above target levels for each of the fiscal years 2025, 2024, and 2023.\n \n \nAs of June 30, 2025, total unrecognized compensation costs related to stock awards were $21.6 billion. These costs are expected to be recognized over a weighted average period of three years. The weighted average grant-date fair value of stock awards granted was $413.90, $339.46, and $252.59 for fiscal years 2025, 2024, and 2023, respectively. The fair value of stock awards vested was $16.2 billion, $16.0 billion, and $11.9 billion, for fiscal years 2025, 2024, and 2023, respectively. As of June 30, 2025, an aggregate of 98 million shares were authorized for future grant under our stock plans.\n \nEmployee Stock Purchase Plan\n \nWe have an ESPP for all eligible employees. Shares of our common stock may be purchased by employees at three-month intervals at 90% of the fair market value on the last trading day of each three-month period. Employees may purchase shares having a value not exceeding 15% of their gross compensation during an offering period.\n \nEmployees purchased the following shares during the periods presented:\n \n \n\n (Shares in millions)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Shares purchased\n 6\n \n 6\n \n 7\n \n \n\n Average price per share\n $ 385.10\n \n $ 339.46\n \n $ 245.59\n \n \n \nAs of June 30, 2025, 62 million shares of our common stock were reserved for future issuance through the ESPP.\n \nSavings Plans\n \nWe have savings plans in the U.S. that qualify under Section 401(k) of the Internal Revenue Code, and a number of savings plans in international locations. Eligible U.S. employees may contribute a portion of their salary into the savings plans, subject to certain limitations. We match a portion of each dollar a participant contributes into the plans. Employer-funded retirement benefits for all plans were $1.8 billion, $1.7 billion, and $1.6 billion in fiscal years 2025, 2024, and 2023, respectively, and were expensed as contributed.\n \n \n \nNOTE 18 — SEGMENT INFORMATION AND GEOGRAPHIC DATA\n \nIn its operation of the business, management, including our chief operating decision maker (“CODM”), who is also our Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements. 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. During the periods presented, we reported our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.\n \nWe have recast certain prior period amounts to conform to the way we internally manage and monitor our business. Refer to Note 1 – Accounting Policies for further information.\n \nOur reportable segments are described below.\n \nProductivity and Business Processes\n \nOur 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:\n \n \nMicrosoft 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.\n \nMicrosoft 365 Consumer products and cloud services, including Microsoft 365 Consumer subscriptions, Office licensed on-premises, and other consumer services.\n \nLinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.\n \nDynamics 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.\n \n \nIntelligent Cloud\n \nOur Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that power modern business and developers. This segment primarily comprises:\n \n \nServer products and cloud services, including Azure and other cloud services, comprising cloud and AI consumption-based services, GitHub cloud services, Nuance Healthcare cloud services, virtual desktop offerings, and other cloud services; and Server products, comprising SQL Server, Windows Server, Visual Studio, System Center, related Client Access Licenses (“CALs”), and other on-premises offerings.\n \nEnterprise and partner services, including Enterprise Support Services, Industry Solutions, Nuance professional services, Microsoft Partner Network, and Learning Experience.\n \n \nMore Personal Computing\n \nOur More Personal Computing segment consists of products and services that put customers at the center of the experience with our technology. This segment primarily comprises:\n \n \nWindows and Devices, including Windows OEM licensing (Windows Pro and non-Pro licenses sold through the OEM channel) and Devices, comprising Surface and PC accessories.\n \nGaming, including Xbox hardware and Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, and other cloud services.\n \nSearch and news advertising, comprising Bing and Copilot, Microsoft News, Microsoft Edge, and third-party affiliates.\n \n \nRevenue and costs are generally directly attributed to our segments. However, due to the integrated structure of our business, certain revenue recognized and costs incurred by one segment may benefit other segments. Revenue from certain contracts is allocated among the segments based on the relative value of the underlying products and services, which can include allocation based on actual prices charged, prices when sold separately, or estimated costs plus a profit margin. Cost of revenue is allocated in certain cases based on a relative revenue methodology. Operating expenses that are allocated primarily include those relating to marketing of products and services from which multiple segments benefit and are generally allocated based on relative gross margin.\n \nIn addition, certain costs are incurred at a corporate level and allocated to our segments. These allocated costs generally include legal, including settlements and fines, information technology, human resources, finance, excise taxes, field selling, shared facilities services, customer service and support, and severance incurred as part of a corporate program. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated and is generally based on relative gross margin or relative headcount.\n \nSegment revenue, cost of revenue, operating expenses, and operating income were as follows during the periods presented:\n \n \n\n (In millions)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Productivity and Business Processes\n \n \n \n \n \n \n \n\n Revenue\n $ 120,810\n \n $ 106,820\n \n $ 94,151\n \n \n\n Cost of revenue\n 22,422\n \n 19,611\n \n 17,202\n \n \n\n Operating expenses\n 28,615\n \n 27,548\n \n 26,875\n \n \n\n Operating Income\n $ 69,773\n \n $ 59,661\n \n $ 50,074\n \n \n\n Intelligent Cloud\n \n \n \n \n \n \n \n\n Revenue\n $ 106,265\n \n $ 87,464\n \n $ 72,944\n \n \n\n Cost of revenue\n 40,171\n \n 29,611\n \n 24,109\n \n \n\n Operating expenses\n 21,505\n \n 20,040\n \n 20,424\n \n \n\n Operating Income\n $ 44,589\n \n $ 37,813\n \n $ 28,411\n \n \n\n More Personal Computing\n \n \n \n \n \n \n \n\n Revenue\n $ 54,649\n \n $ 50,838\n \n $ 44,820\n \n \n\n Cost of revenue\n 25,238\n \n 24,892\n \n 24,552\n \n \n\n Operating expenses\n 15,245\n \n 13,987\n \n 10,230\n \n \n\n Operating Income\n $ 14,166\n \n $ 11,959\n \n $ 10,038\n \n \n\n Total\n \n \n \n \n \n \n \n\n Revenue\n $ 281,724\n \n $ 245,122\n \n $ 211,915\n \n \n\n Cost of revenue\n 87,831\n \n 74,114\n \n 65,863\n \n \n\n Operating expenses\n 65,365\n \n 61,575\n \n 57,529\n \n \n\n Operating Income\n $ 128,528\n \n $ 109,433\n \n $ 88,523\n \n \n \nNo sales to an individual customer or country other than the United States accounted for more than 10% of revenue for fiscal years 2025, 2024, or 2023. Revenue, classified by the major geographic areas in which our customers were located, was as follows:\n \n \n\n (In millions)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n United States (a)\n $ 144,546\n \n $ 124,704\n \n $ 106,744\n \n \n\n Other countries\n 137,178\n \n 120,418\n \n 105,171\n \n \n\n Total\n $ 281,724\n \n $ 245,122\n \n $ 211,915\n \n \n \n \nIncludes billings to OEMs and certain multinational organizations because of the nature of these businesses and the impracticability of determining the geographic source of the revenue.\n \n \nRevenue, classified by significant product and service offerings, was as follows:\n \n \n\n (In millions)\n \n \n \n \n \n \n \n\n Year Ended June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n Server products and cloud services\n $ 98,435\n \n $ 79,828\n \n $ 65,007\n \n \n\n Microsoft 365 Commercial products and cloud services\n 87,767\n \n 76,969\n \n 66,949\n \n \n\n Gaming\n 23,455\n \n 21,503\n \n 15,466\n \n \n\n LinkedIn\n 17,812\n \n 16,372\n \n 14,989\n \n \n\n Windows and Devices\n 17,314\n \n 17,026\n \n 17,147\n \n \n\n Search and news advertising\n 13,878\n \n 12,306\n \n 12,125\n \n \n\n Dynamics products and cloud services\n 7,827\n \n 6,831\n \n 5,796\n \n \n\n Enterprise and partner services\n 7,760\n \n 7,594\n \n 7,900\n \n \n\n Microsoft 365 Consumer products and cloud services\n 7,404\n \n 6,648\n \n 6,417\n \n \n\n Other\n 72\n \n 45\n \n 119\n \n \n\n Total\n $ 281,724\n \n $ 245,122\n \n $ 211,915\n \n \n \nOur Microsoft Cloud revenue, which includes Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365, was $168.9 billion, $137.7 billion, and $111.6 billion in fiscal years 2025, 2024, and 2023, respectively. These amounts are included in Microsoft 365 Commercial products and cloud services, Server products and cloud services, LinkedIn, and Dynamics products and cloud services in the table above.\n \nAssets are not allocated to segments for internal reporting presentations. A portion of amortization and depreciation is included with various other costs in an overhead allocation to each segment. It is impracticable for us to separately identify the amount of amortization and depreciation by segment that is included in the measure of segment profit or loss.\n \nLong-lived assets, excluding financial instruments and tax assets, classified by the location of the controlling statutory company and with countries over 10% of the total shown separately, were as follows:\n \n \n\n (In millions)\n \n \n \n \n \n \n \n\n June 30,\n 2025\n \n 2024\n \n 2023\n \n \n\n United States\n $ 230,069\n \n $ 186,106\n \n $ 114,380\n \n \n\n Other countries\n 141,833\n \n 115,263\n \n 72,859\n \n \n\n Total\n $ 371,902\n \n $ 301,369\n \n $ 187,239\n \n \n \n \n \nAuditor's Report\n \nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\n \nTo the Stockholders and the Board of Directors of Microsoft Corporation\n \nOpinion on the Financial Statements\n \nWe have audited the accompanying consolidated balance sheets of Microsoft Corporation and subsidiaries (the “Company”) as of June 30, 2025 and 2024, the related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity, for each of the three years in the period ended June 30, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2025, in conformity with accounting principles generally accepted in the United States of America.\n \nWe have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 30, 2025, expressed an unqualified opinion on the Company’s internal control over financial reporting.\n \nBasis for Opinion\n \nThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n \nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.\n \nCritical Audit Matters\n \nThe critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.\n \nRevenue Recognition – Refer to Note 1 to the financial statements\n \nCritical Audit Matter Description\n \nThe Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company offers customers the ability to acquire multiple licenses of software products and services, including cloud-based services, in its customer agreements through its volume licensing programs.\n \nSignificant judgment is exercised by the Company in determining revenue recognition for certain customer agreements, and includes the following:\n \n \nDetermination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together, such as software licenses and related services that are sold with cloud-based services.\n \nThe pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.\n \nIdentification and treatment of contract terms that may impact the timing and amount of revenue recognized (e.g., variable consideration, optional purchases, and free services).\n \nDetermination of stand-alone selling prices for each distinct performance obligation and for products and services that are not sold separately.\n \n \nGiven these factors and due to the volume of transactions, the related audit effort in evaluating management’s judgments in determining revenue recognition for certain customer agreements was extensive and required a high degree of auditor judgment.\n \nHow the Critical Audit Matter Was Addressed in the Audit\n \nOur principal audit procedures related to the Company’s revenue recognition for certain customer agreements included the following:\n \n \nWe tested the effectiveness of controls related to the identification of distinct performance obligations, the determination of the timing of revenue recognition, and the estimation of variable consideration.\n \nWe evaluated management’s significant accounting policies related to certain customer agreements for reasonableness.\n \nWe selected a sample of customer agreements and performed the following procedures:\n \n \n \nObtained and read contract source documents for each selection, including master agreements, and other documents that were part of the agreement.\n \nTested management’s identification and treatment of contract terms.\n \nAssessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.\n \n \n \nWe evaluated the reasonableness of management’s estimate of stand-alone selling prices for products and services that are not sold separately.\n \nWe tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements.\n \n \nIncome Taxes – Uncertain Tax Positions – Refer to Note 11 to the financial statements\n \nCritical Audit Matter Description\n \nThe Company’s long-term income taxes liability includes uncertain tax positions related to transfer pricing issues that remain unresolved with the Internal Revenue Service (“IRS”). The Company remains under IRS audit, or subject to IRS audit, for tax years subsequent to 2003. During fiscal year 2024, the Company received Notices of Proposed Adjustments (“NOPAs”) for the tax years 2004 to 2013, primarily related to intercompany transfer pricing. While the Company has settled a portion of the IRS audits, resolution of the remaining matters could have a material impact on the Company’s financial statements.\n \nConclusions on recognizing and measuring uncertain tax positions involve significant estimates and management judgment and include complex considerations of the Internal Revenue Code, related regulations, tax case laws, and prior-year audit settlements. Given the complexity and the subjective nature of certain transfer pricing issues that remain unresolved with the IRS, evaluating management’s estimates relating to their determination of uncertain tax positions required a high degree of auditor judgment, including involvement of our tax specialists.\n \nHow the Critical Audit Matter Was Addressed in the Audit\n \nOur principal audit procedures to evaluate management’s estimates of uncertain tax positions related to unresolved transfer pricing issues included the following:\n \n \nWe evaluated management’s methods and assumptions used in the measurement and disclosure of uncertain tax positions, which included testing the effectiveness of the related internal controls.\n \nWe tested the reasonableness of management’s judgments regarding the future resolution of uncertain tax positions, as follows:\n \n \n \nWe evaluated whether management had appropriately considered new information that could significantly change the measurement of the uncertain tax positions.\n \nWe evaluated the reasonableness of management’s estimates by considering how changes in tax law, including statutes, regulations, and recent case law, impacted management’s judgments.\n \n \n \nWe evaluated the appropriateness of the disclosures in relation to the underlying facts, judgments, and conclusions.\n \n \n/s/    DELOITTE & TOUCHE LLP\n \n\n Seattle, Washington\n\n July 30, 2025\n \n \nWe have served as the Company’s auditor since 1983.\n \n \n \nControls & Procedures\n \nCHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE\n \nNot applicable.\n \nCONTROLS AND PROCEDURES\n \nUnder the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.\n \nREPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING\n \nOur management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our consolidated financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use, or disposition of company assets that could have a material effect on our consolidated financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected.\n \nManagement conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of June 30, 2025. There were no changes in our internal control over financial reporting during the quarter ended June 30, 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, 2025; their report follows.\n \n \n \nREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM\n \nTo the Stockholders and the Board of Directors of Microsoft Corporation\n \nOpinion on Internal Control over Financial Reporting\n \nWe have audited the internal control over financial reporting of Microsoft Corporation and subsidiaries (the “Company”) as of June 30, 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, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.\n \nWe have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2025, of the Company and our report dated July 30, 2025, expressed an unqualified opinion on those financial statements.\n \nBasis for Opinion\n \nThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n \nWe conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.\n \nDefinition and Limitations of Internal Control over Financial Reporting\n \nA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.\n \nBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.\n \n/s/ DELOITTE & TOUCHE LLP\n \n\n Seattle, Washington\n\n July 30, 2025\n \n \n \n \n \n \nDirectors & Officers\n \nDIRECTORS AND EXECUTIVE OFFICERS OF MICROSOFT CORPORATION\n \nDirectors\n \n\n \n\n \n\n Satya Nadella\n\n Chairman and Chief Executive Officer, \n\n Microsoft Corporation\n \n \n \n\n \n\n Catherine MacGregor 2,4\n\n Group Chief Executive Officer and \n\n Director, Engie S.A.\n \n \n \n\n \n\n Carlos A. Rodriguez 1,2\n\n Director, Automatic Data \n\n Processing, Inc.\n \n \n \n \n\n \n\n \n\n Reid G. Hoffman 4\n\n Partner, Greylock Partners\n \n \n \n\n \n\n Mark A. L. Mason 3\n\n Chief Financial Officer, Citigroup Inc.\n \n \n \n\n \n\n Charles W. Scharf 2,3\n\n Chief Executive Officer, President, \n\n and Director, Wells Fargo & Company\n \n \n \n \n\n \n\n \n\n Hugh F. Johnston 1\n\n Senior Executive Vice President and \n\n Chief Financial Officer, \n\n The Walt Disney Company\n \n \n \n\n \n\n Sandra E. Peterson 2,3\n\n Lead Independent Director, \n\n Microsoft Corporation \n\n Operating Partner, Clayton, Dubilier & Rice, LLC\n \n \n \n\n \n\n John W. Stanton 1,4\n\n Founder and Chairman, Trilogy \n\n Partnerships\n \n \n \n \n\n \n\n \n\n Teri L. List 1,3\n\n Former Executive Vice President and Chief Financial Officer, The Gap, Inc.\n \n \n \n\n \n\n Penny S. Pritzker 4\n\n Founder and Chairman, PSP \n\n Partners, LLC\n \n \n \n\n \n\n Emma N. Walmsley 2,4\n\n Chief Executive Officer and Director, \n\n GSK, plc\n \n \n \n \nBoard Committees\n \n \nAudit Committee\n \nCompensation Committee\n \nGovernance and Nominating Committee\n \nEnvironmental, Social, and Public Policy Committee\n \n \nExecutive Officers\n \n\n \n\n \n\n Satya Nadella\n\n Chairman and Chief Executive Officer\n \n \n \n\n \n\n Amy E. Hood\n\n Executive Vice President and Chief Financial Officer\n \n \n \n \n\n \n\n \n\n Judson B. Althoff\n\n Executive Vice President and CEO Microsoft Commercial\n \n \n \n\n \n\n Takeshi Numoto\n\n Executive Vice President and Chief Marketing Officer\n \n \n \n \n\n \n\n \n\n Amy L. Coleman\n\n Executive Vice President and Chief Human Resources Officer\n \n \n \n\n \n\n Bradford L. Smith\n\n Vice Chair and President\n \n \n \n \n\n \n\n \n\n Kathleen T. Hogan\n\n Executive Vice President, Office of Strategy and \n\n Transformation\n \n \n \n \n \n \n \n \nInvestor Relations\n Investor Relations\n \nYou can contact Microsoft Investor Relations by calling toll-free at (800) 285-7772 or outside the United States, call (425) 706-4400. We can be contacted between the hours of 9:00 a.m. to 5:00 p.m. Pacific Time to answer investment-oriented questions about Microsoft.\n \nFor access to additional financial information, visit the Investor Relations website online at: www.microsoft.com/investor\n \nOur e-mail is msft@microsoft.com\n \n\n Our mailing address is:\n\n \n Investor Relations\n\n Microsoft Corporation\n\n One Microsoft Way\n\n Redmond, Washington 98052-6399\n \n\n Attending the Annual Meeting\n \nThe 2025 Annual Shareholders Meeting will be held as a virtual-only meeting. Any shareholder can join the Annual Meeting, while shareholders of record as of September 30 2025, will be able to vote and submit questions during the meeting.\n \n\n Date: Friday, December 5, 2025\n\n Time: 8:30 a.m. Pacific Time\n\n Virtual Shareholder Meeting: www.virtualshareholdermeeting.com/MSFT25\n \n Submit Your Question\n \nWe invite you to submit any questions via the proxy voting site at www.proxyvote.com. We will include as many of your questions as possible during the Q&A session of the meeting and will provide answers to questions on the Microsoft Investor Relations website under the Annual Meeting page.\n Registered Shareholder Services\n \nComputershare, our transfer agent, can help you with a variety of shareholder related services including:\n \n \nChange of address\n \nLost stock certificates\n \nTransfer of stock to another person\n \nAdditional administrative services\n \n \nComputershare also administers a direct stock purchase plan and a dividend reinvestment program for the company.\n \nContact Computershare directly to find out more about these services and programs at 800-285-7772, option 1, or visit online at: https://www.computershare.com/Microsoft\n \nYou can e-mail the transfer agent at: web.queries@computershare.com\n \n\n You can also send mail to the transfer agent at:\n\n \n Computershare\n\n P.O. Box 505000\n\n Louisville, KY 40233-5000\n \n\n \nShareholders can sign up for electronic alerts to access the annual report and proxy statement online. The service gets you the information you need faster and also gives you the power and convenience of online proxy voting. To sign up for this free service, visit the Annual Report site on the Investor Relations website at: http://www.microsoft.com/investor/AnnualReports/default.aspx\n Environmental, Social, and Governance (ESG)/Corporate Social Responsibility\n \nMany of our shareholders are focused on the importance of the effective engagement and action on environmental, social, and governance topics. To meet the expectations of our stakeholders and to and maintain their trust, we are committed to conducting our business in ways that are principled, transparent, and accountable. From our CEO and Senior Leadership Team and throughout our organization, people at Microsoft are working to conduct our business in principled ways that make a significant positive impact on important global issues. Microsoft’s Board of Directors provides insight, feedback, and oversight across a broad range of environmental and social matters. In particular, among the responsibilities of the Board’s Environmental, Social, and Public Policy Committee is to review and provide guidance to the Board and management about the Company’s policies and programs that relate to corporate social responsibility.\n \nFor more about Microsoft’s CSR commitments and performance, please visit: www.microsoft.com/transparency.\n \n \n \n \n \n\n \n \n \n \n \n \n \n \n \n\n"}], "method": "HTML visible text; synthetic page 1", "total_pages": 1, "truncated": false}, "report": {"schema_version": 1, "company": "Microsoft Corporation", "scope": "2023 to 2025 fiscal annual reports; bounded live research", "title": "What the company put on record", "deck": "Source-backed statements from annual reports. Dates, attribution and interpretation remain subject to review.", "as_of": "2026-10-01", "review": "Live research; proposed interpretation. 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