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NOTE 9 — INTANGIBLE ASSETS

The components of intangible assets, all of which are finite-lived, were as follows:


(In millions)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount


June 30,						2025							2024

Marketing-related	$	16,502	$	(3,901	)	$	12,601	$	16,500	$	(3,101	)	$	13,399
Technology-based		22,560		(14,959	)		7,601		21,913		(10,741	)		11,172
Customer-related		4,278		(2,050	)		2,228		6,038		(3,051	)		2,987
Contract-based		217		(43	)		174		58		(19	)		39


Total	$	43,557	$	(20,953	)	$	22,604	$	44,509	$	(16,912	)	$	27,597

No 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.

The components of intangible assets acquired during the periods presented were as follows:


(In millions)	Amount		Weighted Average Life		Amount		Weighted Average Life


Year Ended June 30,	2025				2024

Marketing-related	$	13		10 years	$	11,619		24 years
Technology-based		912		9 years		10,947		4 years
Customer-related		0		0 years		660		4 years
Contract-based		171		5 years		38		4 years


Total	$	1,096		9 years	$	23,264		14 years

Intangible assets amortization expense was $6.0 billion, $4.8 billion, and $2.5 billion for fiscal years 2025, 2024, and 2023, respectively.

The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2025:


(In millions)


Year Ending June 30,

2026	$	4,594
2027		2,901
2028		2,034
2029		1,851
2030		1,382
Thereafter		9,842


Total	$	22,604

NOTE 11 — INCOME TAXES

Provision for Income Taxes

The components of the provision for income taxes were as follows:


(In millions)


Year Ended June 30,	2025			2024			2023

Current Taxes

U.S. federal	$	14,086		$	12,165		$	14,009
U.S. state and local		3,342			2,366			2,322
Foreign		11,423			9,858			6,678


Current taxes	$	28,851		$	24,389		$	23,009

Deferred Taxes

U.S. federal	$	(6,250	)	$	(4,791	)	$	(6,146	)
U.S. state and local		(1,087	)		(379	)		(477	)
Foreign		281			432			564


Deferred taxes	$	(7,056	)	$	(4,738	)	$	(6,059	)


Provision for income taxes	$	21,795		$	19,651		$	16,950

U.S. and foreign components of income before income taxes were as follows:


(In millions)


Year Ended June 30,	2025		2024		2023

U.S.	$	69,212	$	62,886	$	52,917
Foreign		54,415		44,901		36,394


Income before income taxes	$	123,627	$	107,787	$	89,311

Effective Tax Rate

The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate were as follows:




Year Ended June 30,	2025		2024		2023

Federal statutory rate		21.0%		21.0%		21.0%
Effect of:
Foreign earnings taxed at lower rates		(1.5)%		(1.4)%		(1.8)%
Foreign-derived intangible income deduction		(1.0)%		(1.1)%		(1.3)%
State income taxes, net of federal benefit		1.5%		1.5%		1.6%
Research and development credit		(1.1)%		(1.1)%		(1.1)%
Excess tax benefits relating to stock-based compensation		(0.9)%		(1.1)%		(0.7)%
Interest, net		1.0%		1.1%		0.8%
Other reconciling items, net		(1.4)%		(0.7)%		0.5%


Effective rate		17.6%		18.2%		19.0%

The 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.

The 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.

The components of the deferred income tax assets and liabilities were as follows:


(In millions)


June 30,	2025			2024

Deferred Income Tax Assets

Stock-based compensation expense	$	909		$	765
Accruals, reserves, and other expenses		5,050			4,381
Loss and credit carryforwards		2,114			1,741
Amortization		4,118			4,159
Leasing liabilities		12,874			6,504
Unearned revenue		4,324			3,717
Book/tax basis differences in investments and debt		303			9
Capitalized research and development		16,891			11,442
Other		529			426


Deferred income tax assets		47,112			33,144
Less valuation allowance		(1,169	)		(1,045	)


Deferred income tax assets, net of valuation allowance	$	45,943		$	32,099


Deferred Income Tax Liabilities

Leasing assets	$	(12,696	)	$	(6,503	)
Depreciation		(5,699	)		(3,940	)
Deferred tax on foreign earnings		(1,148	)		(1,837	)
Other		(127	)		(167	)


Deferred income tax liabilities	$	(19,670	)	$	(12,447	)


Net deferred income tax assets	$	26,273		$	19,652


Reported As

Other long-term assets	$	29,108		$	22,270
Long-term deferred income tax liabilities		(2,835	)		(2,618	)


Net deferred income tax assets	$	26,273		$	19,652

Deferred 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.

As 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.

The 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.

Income taxes paid, net of refunds, were $28.7 billion, $23.4 billion, and $23.1 billion in fiscal years 2025, 2024, and 2023, respectively.

Uncertain Tax Positions

Gross 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.

As 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.

The aggregate changes in the gross unrecognized tax benefits related to uncertain tax positions were as follows:


(In millions)


Year Ended June 30,	2025			2024			2023

Beginning unrecognized tax benefits	$	22,760		$	17,120		$	15,593
Decreases related to settlements		(240	)		(76	)		(329	)
Increases for tax positions related to the current year		2,066			1,903			1,051
Increases for tax positions related to prior years		468			4,289			870
Decreases for tax positions related to prior years		(300	)		(464	)		(60	)
Decreases due to lapsed statutes of limitations		(25	)		(12	)		(5	)


Ending unrecognized tax benefits	$	24,729		$	22,760		$	17,120

We remain under audit by the IRS for tax years 2014 to 2017. With respect to the audit for tax years 2004 to 2013, on September 26, 2023, we received Notices of Proposed Adjustment (“NOPAs”) from the IRS. The primary issues in the NOPAs relate to intercompany transfer pricing. In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest. As of 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.

We 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.

NOTE 8 — GOODWILL

Changes in the carrying amount of goodwill were as follows:


(In millions)		June 30, 2023		Acquisitions		Other			June 30, 2024		Acquisitions		Other		June 30, 2025


Productivity and Business Processes	$	31,359	$	0	$	2		$	31,361	$	0	$	96	$	31,457
Intelligent Cloud		25,676		0		(28	)		25,648		0		41		25,689
More Personal Computing		10,851		51,235		125			62,211		0		152		62,363


Total	$	67,886	$	51,235	$	99		$	119,220	$	0	$	289	$	119,509

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

The measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available, but do not exceed 12 months. Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.

Any change in the goodwill amounts resulting from foreign currency translations and purchase accounting adjustments are presented as “Other” in the table above. Also included in “Other” are business dispositions and transfers between segments due to reorganizations, as applicable.

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

Goodwill Impairment

We 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.

No 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.

NOTE 2 — EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and stock awards.

The components of basic and diluted EPS were as follows:


(In millions, except per share amounts)


Year Ended June 30,	2025		2024		2023

Net income available for common shareholders (A)	$	101,832	$	88,136	$	72,361


Weighted average outstanding shares of common stock (B)		7,433		7,431		7,446
Dilutive effect of stock-based awards		32		38		26


Common stock and common stock equivalents (C)		7,465		7,469		7,472


Earnings Per Share

Basic (A/B)	$	13.70	$	11.86	$	9.72
Diluted (A/C)	$	13.64	$	11.80	$	9.68

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

NOTE 10 — DEBT

Short-term Debt

As 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.

Long-term Debt

The components of long-term debt were as follows:


(In millions, issuance by calendar year)	Maturities (calendar year)				Stated Interest Rate				Effective Interest Rate			June 30, 2025				June 30, 2024


2009 issuance of $3.8 billion				2039				5.20%			5.24%		$	520		$	520
2010 issuance of $4.8 billion				2040				4.50%			4.57%			486			486
2011 issuance of $2.3 billion				2041				5.30%			5.36%			718			718
2012 issuance of $2.3 billion				2042				3.50%			3.57%			454			454
2013 issuance of $5.2 billion				2043		3.75%	–	4.88%	3.83%	–	4.92%			314			314
2013 issuance of €4.1 billion		2028	–	2033		2.63%	–	3.13%	2.69%	–	3.22%			2,700			2,465
2015 issuance of $23.8 billion		2025	–	2055		3.13%	–	4.75%	3.18%	–	4.78%			7,555			9,805
2016 issuance of $19.8 billion		2026	–	2056		2.40%	–	3.95%	2.46%	–	4.03%			7,930			7,930
2017 issuance of $17.1 billion		2026	–	2057		3.30%	–	4.50%	3.38%	–	5.49%			6,833			6,833
2020 issuance of $10.1 billion		2030	–	2060		1.35%	–	2.68%	2.53%	–	5.43%			10,111			10,111
2021 issuance of $8.2 billion		2052	–	2062		2.92%	–	3.04%	2.92%	–	3.04%			8,185			8,185
2023 issuance of $0.1 billion		2026	–	2050		1.35%	–	4.50%	5.16%	–	5.49%			56			56
2024 issuance of $3.3 billion		2026	–	2050		1.35%	–	4.50%	5.16%	–	5.49%			3,344			3,344


Total face value														49,206			51,221
Unamortized discount and issuance costs														(1,155	)		(1,227	)
Hedge fair value adjustments (a)														(36	)		(81	)
Premium on debt exchange														(4,864	)		(4,976	)


Total debt														43,151			44,937
Current portion of long-term debt														(2,999	)		(2,249	)


Long-term debt													$	40,152		$	42,688

(a)

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

As 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.

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

The following table outlines maturities of our long-term debt, including the current portion, as of June 30, 2025:


(In millions)


Year Ending June 30,

2026	$	3,000
2027		9,250
2028		0
2029		2,054
2030		0
Thereafter		34,902


Total	$	49,206

NOTE 16 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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


(In millions)


Year Ended June 30,	2025			2024			2023

Derivatives

Balance, beginning of period	$	(3	)	$	(27	)	$	(13	)
Unrealized gains (losses), net of tax of $20, $(4), and $9		77			(14	)		34
Reclassification adjustments for (gains) losses included in other income (expense), net		(103	)		48			(61	)
Tax expense (benefit) included in provision for income taxes		21			(10	)		13


Amounts reclassified from accumulated other comprehensive loss		(82	)		38			(48	)


Net change related to derivatives, net of tax of $(1), $6, and $(4)		(5	)		24			(14	)


Balance, end of period	$	(8	)	$	(3	)	$	(27	)


Investments

Balance, beginning of period	$	(2,625	)	$	(3,582	)	$	(2,138	)
Unrealized gains (losses), net of tax of $411, $247, and $(393)		1,560			915			(1,523	)
Reclassification adjustments for losses included in other income (expense), net		17			53			99
Tax benefit included in provision for income taxes		(3	)		(11	)		(20	)


Amounts reclassified from accumulated other comprehensive loss		14			42			79


Net change related to investments, net of tax of $414, $258, and $(373)		1,574			957			(1,444	)


Balance, end of period	$	(1,051	)	$	(2,625	)	$	(3,582	)


Translation Adjustments and Other

Balance, beginning of period	$	(2,962	)	$	(2,734	)	$	(2,527	)
Translation adjustments and other, net of tax of $8, $0, and $0		674			(228	)		(207	)


Balance, end of period	$	(2,288	)	$	(2,962	)	$	(2,734	)


Accumulated other comprehensive loss, end of period	$	(3,347	)	$	(5,590	)	$	(6,343	)

NOTE 18 — SEGMENT INFORMATION AND GEOGRAPHIC DATA

In 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.

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

Our reportable segments are described below.

Productivity and Business Processes

Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises:

•

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

•

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

•

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

•

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

Intelligent Cloud

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

•

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

•

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

More Personal Computing

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

•

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

•

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

•

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

Revenue and costs are generally directly attributed to our segments. However, due to the integrated structure of our business, certain revenue recognized and costs incurred by one segment may benefit other segments. Revenue from certain contracts is allocated among the segments based on the relative value of the underlying products and services, which can include allocation based on actual prices charged, prices when sold separately, or estimated costs plus a profit margin. Cost of revenue is allocated in certain cases based on a relative revenue methodology. Operating expenses that are allocated primarily include those relating to marketing of products and services from which multiple segments benefit and are generally allocated based on relative gross margin.

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

Segment revenue, cost of revenue, operating expenses, and operating income were as follows during the periods presented:


(In millions)


Year Ended June 30,		2025		2024		2023

Productivity and Business Processes

Revenue	$	120,810	$	106,820	$	94,151
Cost of revenue		22,422		19,611		17,202
Operating expenses		28,615		27,548		26,875


Operating Income	$	69,773	$	59,661	$	50,074


Intelligent Cloud

Revenue	$	106,265	$	87,464	$	72,944
Cost of revenue		40,171		29,611		24,109
Operating expenses		21,505		20,040		20,424


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


More Personal Computing

Revenue	$	54,649	$	50,838	$	44,820
Cost of revenue		25,238		24,892		24,552
Operating expenses		15,245		13,987		10,230


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


Total

Revenue	$	281,724	$	245,122	$	211,915
Cost of revenue		87,831		74,114		65,863
Operating expenses		65,365		61,575		57,529


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

No 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:


(In millions)


Year Ended June 30,	2025		2024		2023

United States (a)	$	144,546	$	124,704	$	106,744
Other countries		137,178		120,418		105,171


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

(a)

Includes billings to OEMs and certain multinational organizations because of the nature of these businesses and the impracticability of determining the geographic source of the revenue.

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


(In millions)


Year Ended June 30,	2025		2024		2023

Server products and cloud services	$	98,435	$	79,828	$	65,007
Microsoft 365 Commercial products and cloud services		87,767		76,969		66,949
Gaming		23,455		21,503		15,466
LinkedIn		17,812		16,372		14,989
Windows and Devices		17,314		17,026		17,147
Search and news advertising		13,878		12,306		12,125
Dynamics products and cloud services		7,827		6,831		5,796
Enterprise and partner services		7,760		7,594		7,900
Microsoft 365 Consumer products and cloud services		7,404		6,648		6,417
Other		72		45		119


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

Our 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.

Assets are not allocated to segments for internal reporting presentations. A portion of amortization and depreciation is included with various other costs in an overhead allocation to each segment. It is impracticable for us to separately identify the amount of amortization and depreciation by segment that is included in the measure of segment profit or loss.

Long-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:


(In millions)


June 30,	2025		2024		2023

United States	$	230,069	$	186,106	$	114,380
Other countries		141,833		115,263		72,859


Total	$	371,902	$	301,369	$	187,239

The components of investments were as follows:


(In millions)	Fair Value Level		Adjusted Cost Basis		Unrealized Gains		Unrealized Losses			Recorded Basis		Cash and Cash Equivalents		Short-term Investments		Equity and Other Investments


June 30, 2025

Changes in Fair Value Recorded in Other Comprehensive Income

Commercial paper		Level 2	$	10,880	$	0	$	0		$	10,880	$	9,939	$	941	$	0
Certificates of deposit		Level 2		2,653		0		0			2,653		2,309		344		0
U.S. government securities		Level 1		52,878		71		(1,462	)		51,487		4,742		46,745		0
U.S. agency securities		Level 2		2,686		0		0			2,686		496		2,190		0
Foreign government bonds		Level 2		349		24		(9	)		364		0		364		0
Mortgage- and asset-backed securities		Level 2		2,558		10		(27	)		2,541		0		2,541		0
Corporate notes and bonds		Level 2		10,763		124		(101	)		10,786		0		10,786		0
Corporate notes and bonds		Level 3		2,511		65		(5	)		2,571		0		111		2,460
Municipal securities		Level 2		207		1		(7	)		201		0		201		0
Municipal securities		Level 3		104		0		(14	)		90		0		90		0


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


Changes in Fair Value Recorded in Net Income

Equity investments		Level 1								$	4,577	$	1,045	$	0	$	3,532
Equity investments		Other									9,141		0		0		9,141


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


Cash										$	11,711	$	11,711	$	0	$	0
Derivatives, net (a)											282		0		10		272


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


(In millions)	Fair Value Level		Adjusted Cost Basis		Unrealized Gains		Unrealized Losses			Recorded Basis		Cash and Cash Equivalents		Short-term Investments		Equity and Other Investments


June 30, 2024

Changes in Fair Value Recorded in Other Comprehensive Income

Commercial paper		Level 2	$	4,666	$	0	$	0		$	4,666	$	4,666	$	0	$	0
Certificates of deposit		Level 2		1,547		0		0			1,547		1,503		44		0
U.S. government securities		Level 1		49,603		4		(2,948	)		46,659		14		46,645		0
U.S. agency securities		Level 2		17		0		0			17		0		17		0
Foreign government bonds		Level 2		319		3		(16	)		306		0		306		0
Mortgage- and asset-backed securities		Level 2		944		3		(35	)		912		0		912		0
Corporate notes and bonds		Level 2		9,106		28		(318	)		8,816		0		8,816		0
Corporate notes and bonds		Level 3		1,641		0		(1	)		1,640		0		140		1,500
Municipal securities		Level 2		262		0		(13	)		249		0		249		0
Municipal securities		Level 3		104		0		(17	)		87		0		87		0


Total debt investments			$	68,209	$	38	$	(3,348	)	$	64,899	$	6,183	$	57,216	$	1,500


Changes in Fair Value Recorded in Net Income

Equity investments		Level 1								$	3,547	$	561	$	0	$	2,986
Equity investments		Other									10,114		0		0		10,114


Total equity investments										$	13,661	$	561	$	0	$	13,100


Cash										$	11,571	$	11,571	$	0	$	0
Derivatives, net (a)											12		0		12		0


Total										$	90,143	$	18,315	$	57,228	$	14,600

(a)

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

NOTE 12 — UNEARNED REVENUE

Unearned revenue by segment was as follows:


(In millions)


June 30,	2025		2024

Productivity and Business Processes	$	50,567	$	43,599
Intelligent Cloud		14,022		13,683
More Personal Computing		2,676		2,902


Total	$	67,265	$	60,184

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

Changes in unearned revenue were as follows:


(In millions)


Year Ended June 30, 2025

Balance, beginning of period	$	60,184
Deferral of revenue		186,957
Recognition of unearned revenue		(179,876	)


Balance, end of period	$	67,265

Revenue 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.

NOTE 3 — OTHER INCOME (EXPENSE), NET

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


(In millions)


Year Ended June 30,	2025			2024			2023

Interest and dividends income	$	2,647		$	3,157		$	2,994
Interest expense		(2,385	)		(2,935	)		(1,968	)
Net recognized gains (losses) on investments		(349	)		(118	)		260
Net losses on derivatives		(260	)		(187	)		(456	)
Net gains (losses) on foreign currency remeasurements		171			(244	)		181
Other, net		(4,725	)		(1,319	)		(223	)


Total	$	(4,901	)	$	(1,646	)	$	788

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

Net Recognized Gains (Losses) on Investments

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


(In millions)


Year Ended June 30,	2025			2024			2023

Realized gains from sales of available-for-sale securities	$	40		$	22		$	36
Realized losses from sales of available-for-sale securities		(65	)		(98	)		(124	)
Impairments and allowance for credit losses		8			23			(10	)


Total	$	(17	)	$	(53	)	$	(98	)

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


(In millions)


Year Ended June 30,	2025			2024			2023

Net realized gains on investments sold	$	83		$	18		$	75
Net unrealized gains on investments still held		536			146			303
Impairments of investments		(951	)		(229	)		(20	)


Total	$	(332	)	$	(65	)	$	358

NOTE 13 — LEASES

We have operating and finance leases for datacenters, corporate offices, research and development facilities, Microsoft Experience Centers, and certain equipment. Our leases have remaining lease terms of less than 1 year to 20 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.

The components of lease expense were as follows:


(In millions)


Year Ended June 30,	2025			2024		2023

Operating lease cost	$	5,524	$	3,555	$	2,875


Finance lease cost:
Amortization of right-of-use assets	$	3,408	$	1,800	$	1,352
Interest on lease liabilities		1,417		734		501


Total finance lease cost	$	4,825	$	2,534	$	1,853

Supplemental cash flow information related to leases was as follows:


(In millions)


Year Ended June 30,	2025			2024		2023

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,931	$	3,550	$	2,706
Operating cash flows from finance leases		1,372		734		501
Financing cash flows from finance leases		2,283		1,286		1,056

Right-of-use assets obtained in exchange for lease obligations:
Operating leases		7,826		6,703		3,514
Finance leases		20,511		11,633		3,128

Supplemental balance sheet information related to leases was as follows:


(In millions, except lease term and discount rate)


June 30,	2025			2024

Operating Leases

Operating lease right-of-use assets	$	24,823		$	18,961


Other current liabilities	$	5,424		$	3,580
Operating lease liabilities		17,437			15,497


Total operating lease liabilities	$	22,861		$	19,077


Finance Leases

Property and equipment, at cost	$	53,876		$	32,248
Accumulated depreciation		(9,861	)		(6,386	)


Property and equipment, net	$	44,015		$	25,862


Other current liabilities	$	3,172		$	2,349
Other long-term liabilities		43,000			24,796


Total finance lease liabilities	$	46,172		$	27,145


Weighted Average Remaining Lease Term

Operating leases		6 years			7 years
Finance leases		13 years			12 years

Weighted Average Discount Rate

Operating leases		3.5%			3.3%
Finance leases		4.2%			3.9%

The following table outlines maturities of our lease liabilities as of June 30, 2025:


(In millions)


Year Ending June 30,	Operating Leases			Finance Leases

2026	$	6,111		$	5,008
2027		5,237			5,157
2028		3,495			5,187
2029		2,419			4,521
2030		2,017			4,382
Thereafter		6,202			36,251


Total lease payments		25,481			60,506
Less imputed interest		(2,620	)		(14,334	)


Total	$	22,861		$	46,172

As 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.

NOTE 6 — PROPERTY AND EQUIPMENT

The components of property and equipment were as follows:


(In millions)


June 30,	2025			2024

Land	$	9,338		$	8,163
Buildings and improvements		137,921			93,943
Leasehold improvements		12,117			9,594
Computer equipment and software		132,836			93,780
Furniture and equipment		6,407			6,532


Total, at cost		298,619			212,012
Accumulated depreciation		(93,653	)		(76,421	)


Total, net	$	204,966		$	135,591

During fiscal years 2025, 2024, and 2023, depreciation expense was $22.0 billion, $15.2 billion, and $11.0 billion, respectively.

As 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.