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NOTE 10 — 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,							2024							2023

Marketing-related	$	16,500		$	(3,101	)	$	13,399	$	4,935	$	(2,473	)	$	2,462
Technology-based		21,913			(10,741	)		11,172		11,245		(7,589	)		3,656
Customer-related		6,038			(3,051	)		2,987		7,281		(4,047	)		3,234
Contract-based		58			(19	)		39		29		(15	)		14


Total	$	44,509	(a)	$	(16,912	)	$	27,597	$	23,490	$	(14,124	)	$	9,366

(a)

Includes intangible assets of $22.0 billion related to Activision Blizzard. See Note 8 – Business Combinations for further information.

No 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.

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

(In millions)	Amount			Amount



Year Ended June 30,	2024			2023

Marketing-related	$	11,619	24 years	$	7	5 years
Technology-based		10,947	4 years		522	7 years
Customer-related		660	4 years		0	0 years
Contract-based		38	4 years		12	3 years


Total	$	23,264	14 years	$	541	6 years

Intangible assets amortization expense was $4.8 billion, $2.5 billion, and $2.0 billion for fiscal years 2024, 2023, and 2022, respectively.

The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2024:

(In millions)



Year Ending June 30,

2025	$	5,892
2026		4,471
2027		2,793
2028		1,909
2029		1,728
Thereafter		10,804


Total	$	27,597

NOTE 12 — INCOME TAXES

Provision for Income Taxes

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

(In millions)



Year Ended June 30,	2024			2023			2022

Current Taxes

U.S. federal	$	12,165		$	14,009		$	8,329
U.S. state and local		2,366			2,322			1,679
Foreign		9,858			6,678			6,672


Current taxes	$	24,389		$	23,009		$	16,680

Deferred Taxes

U.S. federal	$	(4,791	)	$	(6,146	)	$	(4,815	)
U.S. state and local		(379	)		(477	)		(1,062	)
Foreign		432			564			175


Deferred taxes	$	(4,738	)	$	(6,059	)	$	(5,702	)


Provision for income taxes	$	19,651		$	16,950		$	10,978

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

(In millions)



Year Ended June 30,	2024		2023		2022

U.S.	$	62,886	$	52,917	$	47,837
Foreign		44,901		36,394		35,879


Income before income taxes	$	107,787	$	89,311	$	83,716

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,	2024		2023		2022

Federal statutory rate		21.0%		21.0%		21.0%
Effect of:
Foreign earnings taxed at lower rates		(1.4)%		(1.8)%		(1.3)%
Impact of intangible property transfers		0%		0%		(3.9)%
Foreign-derived intangible income deduction		(1.1)%		(1.3)%		(1.1)%
State income taxes, net of federal benefit		1.5%		1.6%		1.4%
Research and development credit		(1.1)%		(1.1)%		(0.9)%
Excess tax benefits relating to stock-based compensation		(1.1)%		(0.7)%		(1.9)%
Interest, net		1.1%		0.8%		0.5%
Other reconciling items, net		(0.7)%		0.5%		(0.7)%


Effective rate		18.2%		19.0%		13.1%

In 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.

The 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.

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

(In millions)



June 30,	2024			2023

Deferred Income Tax Assets

Stock-based compensation expense	$	765		$	681
Accruals, reserves, and other expenses		4,381			3,131
Loss and credit carryforwards		1,741			1,441
Amortization		4,159			9,440
Leasing liabilities		6,504			5,041
Unearned revenue		3,717			3,296
Book/tax basis differences in investments and debt		9			373
Capitalized research and development		11,442			6,958
Other		426			489


Deferred income tax assets		33,144			30,850
Less valuation allowance		(1,045	)		(939	)


Deferred income tax assets, net of valuation allowance	$	32,099		$	29,911


Deferred Income Tax Liabilities

Leasing assets	$	(6,503	)	$	(4,680	)
Depreciation		(3,940	)		(2,674	)
Deferred tax on foreign earnings		(1,837	)		(2,738	)
Other		(167	)		(89	)


Deferred income tax liabilities	$	(12,447	)	$	(10,181	)


Net deferred income tax assets	$	19,652		$	19,730


Reported As

Other long-term assets	$	22,270		$	20,163
Long-term deferred income tax liabilities		(2,618	)		(433	)


Net deferred income tax assets	$	19,652		$	19,730

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, 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.

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 $23.4 billion, $23.1 billion, and $16.0 billion in fiscal years 2024, 2023, and 2022, respectively.

Uncertain Tax Positions

Gross 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.

As 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.

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

(In millions)



Year Ended June 30,	2024			2023			2022

Beginning unrecognized tax benefits	$	17,120		$	15,593		$	14,550
Decreases related to settlements		(76	)		(329	)		(317	)
Increases for tax positions related to the current year		1,903			1,051			1,145
Increases for tax positions related to prior years (a)		4,289			870			461
Decreases for tax positions related to prior years		(464	)		(60	)		(246	)
Decreases due to lapsed statutes of limitations		(12	)		(5	)		0


Ending unrecognized tax benefits	$	22,760		$	17,120		$	15,593

(a)

Fiscal 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.

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, 2024, we believe our allowances for income tax contingencies are adequate. We disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals office and, if necessary, judicial proceedings. We do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our income tax contingencies for these issues within the next 12 months.

We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years 1996 to 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.

NOTE 9 — GOODWILL

Changes in the carrying amount of goodwill were as follows:

(In millions)		June 30, 2022		Acquisitions		Other			June 30, 2023		Acquisitions			Other			June 30, 2024



Productivity and Business Processes	$	24,811	$	11	$	(47	)	$	24,775	$	0		$	2		$	24,777
Intelligent Cloud		30,182		223		64			30,469		0			(28	)		30,441
More Personal Computing		12,531		0		111			12,642		51,235	(a)		125	(a)		64,002


Total	$	67,524	$	234	$	128		$	67,886	$	51,235		$	99		$	119,220

(a)

Includes goodwill of $51.0 billion related to Activision Blizzard. See Note 8 – Business Combinations 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.

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, 2024, May 1, 2023, or May 1, 2022 tests. As of June 30, 2024 and 2023, 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,	2024		2023		2022

Net income available for common shareholders (A)	$	88,136	$	72,361	$	72,738


Weighted average outstanding shares of common stock (B)		7,431		7,446		7,496
Dilutive effect of stock-based awards		38		26		44


Common stock and common stock equivalents (C)		7,469		7,472		7,540


Earnings Per Share

Basic (A/B)	$	11.86	$	9.72	$	9.70
Diluted (A/C)	$	11.80	$	9.68	$	9.65

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

NOTE 11 — DEBT

Short-term Debt

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. As of June 30, 2023, we had no commercial paper issued or outstanding.

Long-term Debt

The components of long-term debt were as follows:

(In millions, issuance by calendar year)							Effective Interest Rate						June 30, 2023



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			1,814
2013 issuance of €4.1 billion	2028	–	2033	2.63%	–	3.13%	2.69%	–	3.22%		2,465			2,509
2015 issuance of $23.8 billion	2025	–	2055	2.70%	–	4.75%	2.77%	–	4.78%		9,805			9,805
2016 issuance of $19.8 billion	2026	–	2056	2.40%	–	3.95%	2.46%	–	4.03%		7,930			9,430
2017 issuance of $17.1 billion (a)	2026	–	2057	3.30%	–	4.50%	3.38%	–	5.49%		6,833			8,945
2020 issuance of $10.1 billion (a)	2030	–	2060	1.35%	–	2.68%	2.53%	–	5.43%		10,111			10,000
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 (a)	2026	–	2050	1.35%	–	4.50%	5.16%	–	5.49%		56			0
2024 issuance of $3.3 billion (a)	2026	–	2050	1.35%	–	4.50%	5.16%	–	5.49%		3,344			0


Total face value											51,221			52,866
Unamortized discount and issuance costs											(1,227	)		(438	)
Hedge fair value adjustments (b)											(81	)		(106	)
Premium on debt exchange											(4,976	)		(5,085	)


Total debt											44,937			47,237
Current portion of long-term debt											(2,249	)		(5,247	)


Long-term debt										$	42,688		$	41,990

(a)

Includes $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.

(b)

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

As 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.

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 2024, 2023, and 2022 was $1.7 billion, $1.7 billion, and $1.9 billion, respectively.

The following table outlines maturities of our long-term debt, including the current portion, as of June 30, 2024:

(In millions)



Year Ending June 30,

2025	$	2,250
2026		3,000
2027		9,250
2028		0
2029		1,876
Thereafter		34,845


Total	$	51,221

NOTE 17 — 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,	2024			2023			2022

Derivatives

Balance, beginning of period	$	(27	)	$	(13	)	$	(19	)
Unrealized gains (losses), net of tax of $(4), $9, and $(15)		(14	)		34			(57	)
Reclassification adjustments for (gains) losses included in other income (expense), net		48			(61	)		79
Tax expense (benefit) included in provision for income taxes		(10	)		13			(16	)


Amounts reclassified from accumulated other comprehensive loss		38			(48	)		63


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


Balance, end of period	$	(3	)	$	(27	)	$	(13	)


Investments

Balance, beginning of period	$	(3,582	)	$	(2,138	)	$	3,222
Unrealized gains (losses), net of tax of $247, $(393), and $(1,440)		915			(1,523	)		(5,405	)
Reclassification adjustments for losses included in other income (expense), net		53			99			57
Tax benefit included in provision for income taxes		(11	)		(20	)		(12	)


Amounts reclassified from accumulated other comprehensive loss		42			79			45


Net change related to investments, net of tax of $258, $(373), and $(1,428)		957			(1,444	)		(5,360	)


Balance, end of period	$	(2,625	)	$	(3,582	)	$	(2,138	)


Translation Adjustments and Other

Balance, beginning of period	$	(2,734	)	$	(2,527	)	$	(1,381	)
Translation adjustments and other, net of tax of $0, $0, and $0		(228	)		(207	)		(1,146	)


Balance, end of period	$	(2,962	)	$	(2,734	)	$	(2,527	)


Accumulated other comprehensive loss, end of period	$	(5,590	)	$	(6,343	)	$	(4,678	)

NOTE 19 — SEGMENT INFORMATION AND GEOGRAPHIC DATA

In its operation of the business, management, including our chief operating decision maker, who is also our Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with GAAP. During the periods presented, we reported our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.

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:

Office 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.

•

Office Consumer, including Microsoft 365 Consumer and Copilot Pro subscriptions, Office licensed on-premises, and other Office services.

•

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

•

Dynamics 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.

Intelligent Cloud

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

•

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

•

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, including Windows original equipment manufacturer (“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.

•

Devices, including Surface, HoloLens, and PC accessories.

•

Gaming, 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.

•

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

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

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

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

(In millions)



Year Ended June 30,		2024		2023		2022

Revenue

Productivity and Business Processes	$	77,728	$	69,274	$	63,364
Intelligent Cloud		105,362		87,907		74,965
More Personal Computing		62,032		54,734		59,941


Total	$	245,122	$	211,915	$	198,270


Operating Income

Productivity and Business Processes	$	40,540	$	34,189	$	29,690
Intelligent Cloud		49,584		37,884		33,203
More Personal Computing		19,309		16,450		20,490


Total	$	109,433	$	88,523	$	83,383

No 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:

(In millions)



Year Ended June 30,	2024		2023		2022

United States (a)	$	124,704	$	106,744	$	100,218
Other countries		120,418		105,171		98,052


Total	$	245,122	$	211,915	$	198,270

(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,	2024		2023		2022

Server products and cloud services	$	97,726	$	79,970	$	67,350
Office products and cloud services		54,875		48,848		44,970
Windows		23,244		21,507		24,732
Gaming		21,503		15,466		16,230
LinkedIn		16,372		14,989		13,631
Search and news advertising		12,576		12,158		11,526
Enterprise and partner services		7,594		7,900		7,605
Dynamics products and cloud services		6,481		5,437		4,687
Devices		4,706		5,521		7,306
Other		45		119		233


Total	$	245,122	$	211,915	$	198,270

We have recast certain prior period amounts to conform to the way we internally manage and monitor our business.

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. 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.

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,	2024		2023		2022

United States	$	186,106	$	114,380	$	106,430
Other countries		115,263		72,859		59,938


Total	$	301,369	$	187,239	$	166,368

The components of investments were as follows:

(In millions)		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

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



June 30, 2023

Changes in Fair Value Recorded in Other Comprehensive Income

Commercial paper	Level 2	$	16,589	$	0	$	0		$	16,589	$	12,231	$	4,358	$	0
Certificates of deposit	Level 2		2,701		0		0			2,701		2,657		44		0
U.S. government securities	Level 1		65,237		2		(3,870	)		61,369		2,991		58,378		0
U.S. agency securities	Level 2		2,703		0		0			2,703		894		1,809		0
Foreign government bonds	Level 2		498		1		(24	)		475		0		475		0
Mortgage- and asset-backed securities	Level 2		824		1		(39	)		786		0		786		0
Corporate notes and bonds	Level 2		10,809		8		(583	)		10,234		0		10,234		0
Corporate notes and bonds	Level 3		120		0		0			120		0		120		0
Municipal securities	Level 2		285		1		(18	)		268		7		261		0
Municipal securities	Level 3		103		0		(16	)		87		0		87		0


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


Changes in Fair Value Recorded in Net Income

Equity investments	Level 1								$	10,138	$	7,446	$	0	$	2,692
Equity investments	Other									7,187		0		0		7,187


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


Cash									$	8,478	$	8,478	$	0	$	0
Derivatives, net (a)										6		0		6		0


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

(a)

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

NOTE 13 — UNEARNED REVENUE

Unearned revenue by segment was as follows:

(In millions)



June 30,	2024		2023

Productivity and Business Processes	$	30,879	$	27,572
Intelligent Cloud		23,117		21,563
More Personal Computing		6,188		4,678


Total	$	60,184	$	53,813

Changes in unearned revenue were as follows:

(In millions)



Year Ended June 30, 2024

Balance, beginning of period	$	53,813
Deferral of revenue		148,701
Recognition of unearned revenue		(142,330	)


Balance, end of period	$	60,184

Revenue 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.

NOTE 3 — OTHER INCOME (EXPENSE), NET

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

(In millions)



Year Ended June 30,	2024			2023			2022

Interest and dividends income	$	3,157		$	2,994		$	2,094
Interest expense		(2,935	)		(1,968	)		(2,063	)
Net recognized gains (losses) on investments		(118	)		260			461
Net losses on derivatives		(187	)		(456	)		(52	)
Net gains (losses) on foreign currency remeasurements		(244	)		181			(75	)
Other, net		(1,319	)		(223	)		(32	)


Total	$	(1,646	)	$	788		$	333

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

Net Recognized Gains (Losses) on Investments

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

(In millions)



Year Ended June 30,	2024			2023			2022

Realized gains from sales of available-for-sale securities	$	22		$	36		$	162
Realized losses from sales of available-for-sale securities		(98	)		(124	)		(138	)
Impairments and allowance for credit losses		23			(10	)		(81	)


Total	$	(53	)	$	(98	)	$	(57	)

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

(In millions)



Year Ended June 30,	2024			2023			2022

Net realized gains on investments sold	$	18		$	75		$	29
Net unrealized gains on investments still held		146			303			509
Impairments of investments		(229	)		(20	)		(20	)


Total	$	(65	)	$	358		$	518

NOTE 14 — 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 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.

The components of lease expense were as follows:

(In millions)



Year Ended June 30,	2024			2023		2022

Operating lease cost	$	3,555	$	2,875	$	2,461


Finance lease cost:
Amortization of right-of-use assets	$	1,800	$	1,352	$	980
Interest on lease liabilities		734		501		429


Total finance lease cost	$	2,534	$	1,853	$	1,409

Supplemental cash flow information related to leases was as follows:

(In millions)



Year Ended June 30,	2024			2023		2022

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,550	$	2,706	$	2,368
Operating cash flows from finance leases		734		501		429
Financing cash flows from finance leases		1,286		1,056		896

Right-of-use assets obtained in exchange for lease obligations:
Operating leases		6,703		3,514		5,268
Finance leases		11,633		3,128		4,234

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)



June 30,	2024			2023

Operating Leases

Operating lease right-of-use assets	$	18,961		$	14,346


Other current liabilities	$	3,580		$	2,409
Operating lease liabilities		15,497			12,728


Total operating lease liabilities	$	19,077		$	15,137


Finance Leases

Property and equipment, at cost	$	32,248		$	20,538
Accumulated depreciation		(6,386	)		(4,647	)


Property and equipment, net	$	25,862		$	15,891


Other current liabilities	$	2,349		$	1,197
Other long-term liabilities		24,796			15,870


Total finance lease liabilities	$	27,145		$	17,067


Weighted Average Remaining Lease Term

Operating leases		7 years			8 years
Finance leases		12 years			11 years

Weighted Average Discount Rate

Operating leases		3.3%			2.9%
Finance leases		3.9%			3.4%

The following table outlines maturities of our lease liabilities as of June 30, 2024:

(In millions)



Year Ending June 30,	Operating Leases			Finance Leases

2025	$	4,124		$	3,311
2026		3,549			3,021
2027		2,981			3,037
2028		2,405			3,026
2029		1,924			2,638
Thereafter		6,587			19,116


Total lease payments		21,570			34,149
Less imputed interest		(2,493	)		(7,004	)


Total	$	19,077		$	27,145

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. These operating and finance leases will commence between fiscal year 2025 and fiscal year 2030 with lease terms of 1 year to 20 years.

NOTE 15 — CONTINGENCIES

U.S. Cell Phone Litigation

Microsoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a defendant in 45 lawsuits filed in the Superior Court for the District of Columbia by individual plaintiffs who allege that radio emissions from cellular handsets caused their brain tumors and other adverse health effects. We assumed responsibility for these claims in our agreement to acquire Nokia’s Devices and Services business and have been substituted for the Nokia defendants. Twelve of these cases were consolidated for certain pre-trial proceedings; the remaining cases are stayed. In a separate 2009 decision, the Court of Appeals for the District of Columbia held that adverse health effect claims arising from the use of cellular handsets that operate within the U.S. Federal Communications Commission radio frequency emission guidelines (“FCC Guidelines”) are pre-empted by federal law. The plaintiffs allege that their handsets either operated outside the FCC Guidelines or were manufactured before the FCC Guidelines went into effect. The lawsuits also allege an industry-wide conspiracy to manipulate the science and testing around emission guidelines.

In 2013, the defendants in the consolidated cases moved to exclude the plaintiffs’ expert evidence of general causation on the basis of flawed scientific methodologies. In 2014, the trial court granted in part and denied in part the defendants’ motion to exclude the plaintiffs’ general causation experts. The defendants filed an interlocutory appeal to the District of Columbia Court of Appeals challenging the standard for evaluating expert scientific evidence. In October 2016, the Court of Appeals issued its decision adopting the standard advocated by the defendants and remanding the cases to the trial court for further proceedings under that standard. The plaintiffs have filed supplemental expert evidence, portions of which were stricken by the court. A hearing on general causation took place in September of 2022. In April of 2023, the court granted defendants’ motion to strike the testimony of plaintiffs’ experts that cell phones cause brain cancer and entered an order excluding all of plaintiffs’ experts from testifying. The parties agreed to a stipulated dismissal of the consolidated cases to allow plaintiffs to appeal the expert testimony order. Plaintiffs appealed the court’s order in August of 2023, and the 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.

Irish Data Protection Commission Matter

In 2018, the Irish Data Protection Commission (“IDPC”) began investigating a complaint against LinkedIn as to whether LinkedIn’s targeted advertising practices violated the recently implemented European Union General Data Protection Regulation (“GDPR”). Microsoft cooperated throughout the period of inquiry. In 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.

Other Contingencies

We also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact in our consolidated financial statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

As of 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.

(In millions)



June 30,	2024		2023

Raw materials	$	394	$	709
Work in process		7		23
Finished goods		845		1,768


Total	$	1,246	$	2,500