Financial Analysis

NOTE 17 EMPLOYEE STOCK AND SAVINGS PLANS We 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. Stock-based compensation expense and related income tax benefits were as follows: (In millions) Year Ended June 30, 2026 2025 2024 Stock-based compensation expense $ 12,405 $ 11,974 $ 10,734 Income tax benefits related to stock-based compensation 2,089 2,027 1,826 Stock Plans Stock 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 . Executive Incentive Plan Under 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. Activity for All Stock Plans The fair value of stock awards was estimated on the date of grant using the following assumptions: Year Ended June 30, 2026 2025 2024 Dividends per share (quarterly amounts) $ 0.83 0.91 $ 0.75 0.83 $ 0.68 0.75 Intere …

CompensationAndEmployeeBenefitPlansTextBlock · excerpt; the full note is in the filing

NOTE 10 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, 2026 June 30, 2025 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 % 2,630 2,700 2015 issuance of $ 23.8 billion 2035 2055 3.50 % 4.75 % 3.60 % 4.78 % 4,555 7,555 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 46,136 49,206 Unamortized discount and issuance costs ( 1,081 ) ( 1,155 ) Hedge fair value adjustments (a) ( 11 ) ( 36 ) Premium on debt exchange ( 4,750 ) ( 4,864 ) Total debt 40,294 43,151 Current portion of long-term debt ( 9,227 ) ( 2,999 ) Long-term debt $ 31,067 $ 40,152 (a) Refer to Note 5 Derivatives for further inf …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

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, 2026 2025 2024 Current Taxes U.S. federal $ 2,461 $ 14,086 $ 12,165 U.S. state and local 2,713 3,342 2,366 Foreign 12,587 11,423 9,858 Current taxes $ 17,761 $ 28,851 $ 24,389 Deferred Taxes U.S. federal $ 12,780 $ ( 6,250 ) $ ( 4,791 ) U.S. state and local 1,113 ( 1,087 ) ( 379 ) Foreign 531 281 432 Deferred taxes $ 14,424 $ ( 7,056 ) $ ( 4,738 ) Provision for income taxes $ 32,185 $ 21,795 $ 19,651 U.S. and foreign components of income before income taxes were as follows: (In millions) Year Ended June 30, 2026 2025 2024 U.S. $ 103,591 $ 69,212 $ 62,886 Foreign 62,343 54,415 44,901 Income before income taxes $ 165,934 $ 123,627 $ 107,787 Effective Tax Rate We adopted Accounting Standards Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09) prospectively. The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate for the year ended June 30, 2026, pursuant to the requirements of ASU 2023-09, were as follows: (In millions, except percentages) Year Ended June 30, 2026 Federal statutory tax rate $ 34,846 21.0 % Effect of: State and local income tax, net of federal income tax effect (a) 2,573 1.6 % Foreign tax effects: Ireland: Statutory tax rate difference ( 4,301 ) ( 2.6 )% Other 809 0.5 % Other foreign jurisdictions (b) 3,2 …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

NOTE 14 CONTINGENCIES Irish Data Protection Commission Matter In 2018, the Irish Data Protection Commission (IDPC) began investigating a complaint against LinkedIn as to whether LinkedIns 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. A preliminary hearing was held in December 2025. The court issued a ruling on the standard of appeal, which the IDPC may 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 managements view of these matters may change in the future. As of June 30, 2026, we accrued aggregate legal liabilities of $ 553 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $ 400 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 f …

LegalMattersAndContingenciesTextBlock · excerpt; the full note is in the filing

Recent Accounting Guidance Recently Adopted Accounting Guidance Income Taxes Improvements to Income Tax Disclosures In December 2023, the Financial Accounting Standards Board (FASB) issued a new standard to improve income tax disclosures. The guidance requires additional disclosure of disaggregated income taxes paid and prescribes standardized categories for the components of the effective tax rate reconciliation. We adopted the standard prospectively beginning with our annual reporting for fiscal year 2026. The adoption resulted in incremental income tax disclosures. Refer to Note 11 Income Taxes. Recent Accounting Guidance Not Yet Adopted Income Statement Disaggregation of Income Statement Expenses In November 2024, the FASB issued a new standard to expand disclosures about income statement expenses. The guidance requires disaggregation of certain costs and expenses included in each relevant expense caption on our consolidated income statements in a separate note to the financial statements at each interim and annual reporting period, including amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization. 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. …

NewAccountingPronouncementsPolicyPolicyTextBlock · excerpt; the full note is in the filing

NOTE 12 UNEARNED REVENUE Unearned revenue by segment was as follows: (In millions) June 30, 2026 2025 Productivity and Business Processes $ 57,936 $ 50,567 Intelligent Cloud 14,942 14,022 More Personal Computing 2,834 2,676 Total $ 75,712 $ 67,265 Changes in unearned revenue were as follows: (In millions) Year Ended June 30, 2026 Balance, beginning of period $ 67,265 Deferral of revenue 194,184 Recognition of unearned revenue ( 185,737 ) Balance, end of period $ 75,712 Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts expected to be invoiced and recognized as revenue in future periods, was $ 684 billion as of June 30, 2026. Revenue allocated to remaining performance obligations related to the commercial portion of revenue was $ 678 billion as of June 30, 2026, with a weighted average duration of approximately 2.3 years. We expect to recognize approximately 30 % of both our total company remaining performance obligation revenue and commercial remaining performance obligation revenue over the next 12 months and the remainder thereafter. …

RevenueFromContractWithCustomerTextBlock · excerpt; the full note is in the filing

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 three 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: 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; …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing

NOTE 1 ACCOUNTING POLICIES Accounting Principles Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Principles of Consolidation The consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated. Recast of Certain Prior Period Information We have recast certain prior period amounts on our consolidated cash flows statements 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 net cash from (used in) operations, investing, or financing on our consolidated cash flows statements. Estimates and Assumptions Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price (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 in …

SignificantAccountingPoliciesTextBlock · excerpt; the full note is in the filing

NOTE 15 STOCKHOLDERS EQUITY Shares Outstanding Shares of common stock outstanding were as follows: (In millions) Year Ended June 30, 2026 2025 2024 Balance, beginning of year 7,434 7,434 7,432 Issued 29 31 34 Repurchased ( 36 ) ( 31 ) ( 32 ) Balance, end of year 7,427 7,434 7,434 Share Repurchases On September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $ 60.0 billion in share repurchases. This share repurchase program commenced in November 2021 and was completed in April 2025. On September 16, 2024, our Board of Directors approved a share repurchase program authorizing up to $ 60.0 billion in share repurchases. This share repurchase program commenced in April 2025, following completion of the program approved on September 14, 2021, has no expiration date, and may be terminated at any time. As of June 30, 2026, $ 40.6 billion remained of this $ 60.0 billion share repurchase program. We repurchased the following shares of common stock under the share repurchase programs: (In millions) Shares Amount Shares Amount Shares Amount Year Ended June 30, 2026 2025 2024 First Quarter 8 $ 3,955 7 $ 2,800 11 $ 3,560 Second Quarter 12 5,964 8 3,500 7 2,800 Third Quarter 7 3,400 8 3,500 7 2,800 Fourth Quarter 9 3,400 8 3,200 7 2,800 Total 36 $ 16,719 31 $ 13,000 32 $ 11,960 All share repurchases were made using cash resources. Shares repurchased during fiscal year 2026 were under the share repurchase program approved on September 16, 2024. Shares r …

StockholdersEquityNoteDisclosureTextBlock · excerpt; the full note is in the filing

NOTE 9 DEBT The components of long-term debt were as follows: (In millions, issuance by calendar year) Maturities (calendar year) Stated Interest Rate Effective Interest Rate March 31, 2026 June 30, 2025 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 % 2,650 2,700 2015 issuance of $ 23.8 billion 2035 2055 3.50 % 4.75 % 3.60 % 4.78 % 4,555 7,555 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 46,156 49,206 Unamortized discount and issuance costs ( 1,098 ) ( 1,155 ) Hedge fair value adjustments (a) ( 17 ) ( 36 ) Premium on debt exchange ( 4,779 ) ( 4,864 ) Total debt 40,262 43,151 Current portion of long-term debt ( 8,839 ) ( 2,999 ) Long-term debt $ 31,423 $ 40,152 (a) Refer to Note 5 Derivatives for further inf …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

NOTE 10 INCOME TAXES Effective Tax Rate Our effective tax rate was 19 % and 18 % for the three months ended March 31, 2026 and 2025, respectively, and 20 % and 18 % for the nine months ended March 31, 2026 and 2025, respectively. The increase in our effective tax rate for the three months ended March 31, 2026 compared to the prior year was primarily due to changes in the mix of our earnings and tax expenses between the U.S. and foreign countries. The increase in our effective tax rate for the nine months ended March 31, 2026 compared to the prior year was primarily due to changes in the mix of our earnings and tax expenses between the U.S. and foreign countries and deferred tax expense attributable to the dilution gain from the OpenAI Recapitalization. Our effective tax rate was lower than the U.S. federal statutory rate for the three and nine months ended March 31, 2026, primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations center in Ireland. Uncertain Tax Positions As of March 31, 2026 and June 30, 2025, unrecognized tax benefits and other income tax liabilities were $ 29.3 billion and $ 27.4 billion, respectively, and are included in long-term income taxes in our consolidated balance sheets. We remain under audit by the IRS for tax years 2014 to 2017 . With respect to the audit for tax years 2004 to 2013 , on September 26, 2023, we received Notices …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

NOTE 13 CONTINGENCIES Irish Data Protection Commission Matter In 2018, the Irish Data Protection Commission (IDPC) began investigating a complaint against LinkedIn as to whether LinkedIns 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. A preliminary hearing was held in December 2025. Other Contingencies We also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact in our consolidated financial statements, these matters are subject to inherent uncertainties and managements view of these matters may change in the future. As of March 31, 2026, we accrued aggregate legal liabilities of $ 647 million. While we intend to defend these matters vigorously, adverse outcomes that we estimate could reach approximately $ 400 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 bec …

LegalMattersAndContingenciesTextBlock · excerpt; the full note is in the filing

Recent Accounting Guidance Income Taxes Improvements to Income Tax Disclosures In December 2023, the Financial Accounting Standards Board (FASB) issued a new standard to improve income tax disclosures. The guidance requires additional disclosure of disaggregated income taxes paid and prescribes standardized categories for the components of the effective tax rate reconciliation. We will adopt the standard prospectively on the effective date in our annual reporting for fiscal year 2026. Income Statement Disaggregation of Income Statement Expenses In November 2024, the FASB issued a new standard to expand disclosures about income statement expenses. The guidance requires disaggregation of certain costs and expenses included in each relevant expense caption on our consolidated income statements in a separate note to the financial statements at each interim and annual reporting period, including amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The standard will be effective for us beginning with our annual reporting for fiscal year 2028 and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of this standard on our disclosures. …

NewAccountingPronouncementsPolicyPolicyTextBlock · excerpt; the full note is in the filing

NOTE 11 UNEARNED REVENUE Unearned revenue by segment was as follows: (In millions) March 31, 2026 June 30, 2025 Productivity and Business Processes $ 39,904 $ 50,567 Intelligent Cloud 10,892 14,022 More Personal Computing 2,881 2,676 Total $ 53,677 $ 67,265 Changes in unearned revenue were as follows: (In millions) Nine Months Ended March 31, 2026 Balance, beginning of period $ 67,265 Deferral of revenue 143,442 Recognition of unearned revenue ( 157,030 ) Balance, end of period $ 53,677 Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts expected to be invoiced and recognized as revenue in future periods, was $ 633 billion as of March 31, 2026. Estimating revenue that will be allocated to remaining performance obligations can involve significant judgments, including identifying and assessing variable consideration and potential renegotiation of commitments. We consider factors such as the nature of the terms and duration of the contract across our portfolio of contracts. Revenue allocated to remaining performance obligations related to the commercial portion of revenue was $ 627 billion as of March 31, 2026, with a weighted average duration of approximately 2.5 years. We expect to recognize approximately 30 % of our total company remaining performance obligation revenue and 25 % of our commercial remaining performance obligation revenue over the next 12 months and the remainder thereafter. …

RevenueFromContractWithCustomerTextBlock · excerpt; the full note is in the filing

NOTE 16 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. 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 …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing

NOTE 1 ACCOUNTING POLICIES Accounting Principles Our unaudited interim consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Microsoft Corporation fiscal year 2025 Form 10-K filed with the U.S. Securities and Exchange Commission on July 30, 2025. We have recast certain prior period amounts on our consolidated cash flows statements 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 net cash from (used in) operations, investing, or financing on our consolidated cash flows statements. Principles of Consolidation The consolidated financial statements include the accounts of Microsoft Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated. Estimates and Assumptions Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenu …

SignificantAccountingPoliciesTextBlock · excerpt; the full note is in the filing

NOTE 14 STOCKHOLDERS EQUITY Share Repurchases On September 14, 2021, our Board of Directors approved a share repurchase program authorizing up to $ 60.0 billion in share repurchases. This share repurchase program commenced in November 2021 and was completed in April 2025. On September 16, 2024, our Board of Directors approved a share repurchase program authorizing up to $ 60.0 billion in share repurchases. This share repurchase program commenced in April 2025, following completion of the program approved on September 14, 2021, has no expiration date, and may be terminated at any time. As of March 31, 2026, $ 44.0 billion remained of this $ 60.0 billion share repurchase program. We repurchased the following shares of common stock under the share repurchase programs: (In millions) Shares Amount Shares Amount Fiscal Year 2026 2025 First Quarter 8 $ 3,955 7 $ 2,800 Second Quarter 12 5,964 8 3,500 Third Quarter 7 3,400 8 3,500 Total 27 $ 13,319 23 $ 9,800 All repurchases were made using cash resources. Shares repurchased during fiscal year 2026 were under the share repurchase program approved on September 16, 2024. Shares repurchased during fiscal year 2025 were under the share repurchase program approved on September 14, 2021. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $ 1.2 billion and $ 4.4 billion for the three and nine months ended March 31, 2026, respectively, and $ 1.3 billion and $ 4.1 billion fo …

StockholdersEquityNoteDisclosureTextBlock · excerpt; the full note is in the filing