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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Quarterly Period Ended September 30, 2025

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Transition Period From to

Commission File Number 001-37845

MICROSOFT CORPORATION


Washington		91-1144442
(STATE OF INCORPORATION)		(I.R.S. ID)

ONE MICROSOFT WAY, REDMOND, Washington 98052-6399

(425) 882-8080

www.microsoft.com/investor



Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of exchange on which registered

Common stock, $0.00000625 par value per share	MSFT	Nasdaq
3.125% Notes due 2028	MSFT	Nasdaq
2.625% Notes due 2033	MSFT	Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer ☒		Accelerated Filer ☐
Non-accelerated Filer ☐		Smaller Reporting Company ☐
		Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding as of October 23, 2025


Common Stock, $0.00000625 par value per share		7,432,377,655 shares

MICROSOFT CORPORATION

FORM 10-Q

For the Quarter Ended September 30, 2025

INDEX


				Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		a)	Income Statements for the Three Months Ended September 30, 2025 and 2024	3

		b)	Comprehensive Income Statements for the Three Months Ended September 30, 2025 and 2024	4

		c)	Balance Sheets as of September 30, 2025 and June 30, 2025	5

		d)	Cash Flows Statements for the Three Months Ended September 30, 2025 and 2024	6

		e)	Stockholders’ Equity Statements for the Three Months Ended September 30, 2025 and 2024	7

		f)	Notes to Financial Statements	8

		g)	Report of Independent Registered Public Accounting Firm	28

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		42

	Item 4.	Controls and Procedures		42

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings		43

	Item 1A.	Risk Factors		43

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		58

	Item 5.	Other Information		59

	Item 6.	Exhibits		60

SIGNATURE				61

PART I

Item 1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INCOME STATEMENTS


(In millions, except per share amounts) (Unaudited)


Three Months Ended September 30,	2025			2024

Revenue:
Product	$	15,922		$	15,272
Service and other		61,751			50,313


Total revenue		77,673			65,585


Cost of revenue:
Product		2,922			3,294
Service and other		21,121			16,805


Total cost of revenue		24,043			20,099


Gross margin		53,630			45,486
Research and development		8,146			7,544
Sales and marketing		5,717			5,717
General and administrative		1,806			1,673


Operating income		37,961			30,552
Other expense, net		(3,660	)		(283	)


Income before income taxes		34,301			30,269
Provision for income taxes		6,554			5,602


Net income	$	27,747		$	24,667


Earnings per share:
Basic	$	3.73		$	3.32
Diluted	$	3.72		$	3.30

Weighted average shares outstanding:
Basic		7,433			7,433
Diluted		7,466			7,470

Refer to accompanying notes.

PART I

Item 1

COMPREHENSIVE INCOME STATEMENTS


(In millions) (Unaudited)


Three Months Ended September 30,	2025			2024

Net income	$	27,747		$	24,667


Other comprehensive income (loss), net of tax:
Net change related to derivatives		(3	)		(10	)
Net change related to investments		687			1,114
Translation adjustments and other		(98	)		304


Other comprehensive income		586			1,408


Comprehensive income	$	28,333		$	26,075

Refer to accompanying notes.

PART I

Item 1

BALANCE SHEETS


(In millions) (Unaudited)


	September 30, 2025			June 30, 2025

Assets
Current assets:
Cash and cash equivalents	$	28,849		$	30,242
Short-term investments		73,163			64,323


Total cash, cash equivalents, and short-term investments		102,012			94,565
Accounts receivable, net of allowance for doubtful accounts of $687 and $944		52,894			69,905
Inventories		1,130			938
Other current assets		33,030			25,723


Total current assets		189,066			191,131
Property and equipment, net of accumulated depreciation of $98,880 and $93,653		230,861			204,966
Operating lease right-of-use assets		24,791			24,823
Equity and other investments		11,465			15,405
Goodwill		119,497			119,509
Intangible assets, net		21,236			22,604
Other long-term assets		39,435			40,565


Total assets	$	636,351		$	619,003


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	32,580		$	27,724
Current portion of long-term debt		7,832			2,999
Accrued compensation		9,201			13,709
Short-term income taxes		3,655			7,211
Short-term unearned revenue		58,987			64,555
Other current liabilities		22,741			25,020


Total current liabilities		134,996			141,218
Long-term debt		35,376			40,152
Long-term income taxes		26,569			25,986
Long-term unearned revenue		2,546			2,710
Deferred income taxes		2,852			2,835
Operating lease liabilities		17,348			17,437
Other long-term liabilities		53,588			45,186


Total liabilities		273,275			275,524


Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 7,434 and 7,434		110,964			109,095
Retained earnings		254,873			237,731
Accumulated other comprehensive loss		(2,761	)		(3,347	)


Total stockholders’ equity		363,076			343,479


Total liabilities and stockholders’ equity	$	636,351		$	619,003

Refer to accompanying notes.

PART I

Item 1

CASH FLOWS STATEMENTS


(In millions) (Unaudited)


Three Months Ended September 30,	2025			2024

Operations
Net income	$	27,747		$	24,667
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other		13,061			7,383
Stock-based compensation expense		2,983			2,832
Net recognized gains on investments and derivatives		(1,007	)		(125	)
Deferred income taxes		2,491			(1,433	)
Changes in operating assets and liabilities:
Accounts receivable		16,490			14,037
Inventories		(192	)		(373	)
Other current assets		(1,162	)		(82	)
Other long-term assets		(394	)		(1,761	)
Accounts payable		(614	)		(916	)
Unearned revenue		(5,418	)		(5,553	)
Income taxes		(2,944	)		1,016
Other current liabilities		(5,507	)		(5,479	)
Other long-term liabilities		(477	)		(33	)


Net cash from operations		45,057			34,180


Financing
Repayments of debt, maturities of 90 days or less		0			(5,746	)
Repayments of debt		0			(966	)
Common stock issued		689			706
Common stock repurchased		(5,650	)		(4,107	)
Common stock cash dividends paid		(6,169	)		(5,574	)
Other, net		(669	)		(889	)


Net cash used in financing		(11,799	)		(16,576	)


Investing
Additions to property and equipment		(19,394	)		(14,923	)
Acquisition of companies, net of cash acquired and divestitures, and purchases of intangible and other assets		(578	)		(1,849	)
Purchases of investments		(17,671	)		(1,620	)
Maturities of investments		6,031			2,136
Sales of investments		3,262			1,968
Other, net		(6,209	)		(913	)


Net cash used in investing		(34,559	)		(15,201	)


Effect of foreign exchange rates on cash and cash equivalents		(92	)		122


Net change in cash and cash equivalents		(1,393	)		2,525
Cash and cash equivalents, beginning of period		30,242			18,315


Cash and cash equivalents, end of period	$	28,849		$	20,840

Refer to accompanying notes.

PART I

Item 1

STOCKHOLDERS’ EQUITY STATEMENTS


(In millions, except per share amounts) (Unaudited)


Three Months Ended September 30,	2025			2024

Common stock and paid-in capital
Balance, beginning of period	$	109,095		$	100,923
Common stock issued		689			706
Common stock repurchased		(1,801	)		(1,485	)
Stock-based compensation expense		2,983			2,832
Other, net		(2	)		0


Balance, end of period		110,964			102,976


Retained earnings
Balance, beginning of period		237,731			173,144
Net income		27,747			24,667
Common stock cash dividends		(6,764	)		(6,171	)
Common stock repurchased		(3,841	)		(2,711	)


Balance, end of period		254,873			188,929


Accumulated other comprehensive loss
Balance, beginning of period		(3,347	)		(5,590	)
Other comprehensive income		586			1,408


Balance, end of period		(2,761	)		(4,182	)


Total stockholders’ equity	$	363,076		$	287,723


Cash dividends declared per common share	$	0.91		$	0.83

Refer to accompanying notes.

PART I

Item 1

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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.

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, 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 of performance obligations, variable consideration, and other obligations such as product returns and refunds; loss contingencies; the fair value of and/or potential impairment of goodwill and intangible assets for our reporting units; product life cycles; useful lives of our tangible and intangible assets; allowances for doubtful accounts; stock-based compensation forfeiture rates; when technological feasibility is achieved for our products; the potential outcome of uncertain tax positions that have been recognized in our consolidated financial statements or tax returns; and determining the timing and amount of impairments for investments. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties.

Financial Instruments

Investments

We consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair values of these investments approximate their carrying values. In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.

Debt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Changes in fair value, excluding credit losses and impairments, are recorded in other comprehensive income. Fair value is calculated based on publicly available market information or other estimates determined by management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. To determine credit losses, we employ a systematic methodology that considers available quantitative and qualitative evidence. In addition, we consider specific adverse conditions related to the financial health of, and business outlook for, the investee. If we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in other income (expense), net and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, we may incur future impairments.

PART I

Item 1

Equity investments with readily determinable fair values are measured at fair value. Equity investments without readily determinable fair values are measured using the equity method or measured at cost with adjustments for observable changes in price or impairments (referred to as the measurement alternative). We perform a qualitative assessment on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Changes in value are recorded in other income (expense), net.

Investments that are considered variable interest entities (“VIEs”) are evaluated to determine whether we are the primary beneficiary of the VIE, in which case we would be required to consolidate the entity. We evaluate whether we have (1) the power to direct the activities that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We have determined we are not the primary beneficiary of any of our VIE investments. Therefore, our VIE investments are not consolidated and the majority are accounted for under the equity method of accounting.

We have an investment in OpenAI Global, LLC (“OpenAI”) and have made total funding commitments of $13 billion, of which $11.6 billion has been funded as of September 30, 2025. The investment is accounted for under the equity method of accounting, with our share of OpenAI’s income or loss recognized in other income (expense), net.

Derivatives

Derivative instruments are recognized as either assets or liabilities and measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.

For derivative instruments designated as fair value hedges, gains and losses are recognized in other income (expense), net with offsetting gains and losses on the hedged items. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.

For derivative instruments designated as cash flow hedges, gains and losses are initially reported as a component of other comprehensive income and subsequently recognized in other income (expense), net with the corresponding hedged item. Gains and losses representing hedge components excluded from the assessment of effectiveness are recognized in other income (expense), net.

For derivative instruments that are not designated as hedges, gains and losses from changes in fair values are primarily recognized in other income (expense), net.

Fair Value Measurements

We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

•

Level 1 – inputs are based upon unadjusted quoted prices for identical instruments in active markets. Our Level 1 investments include U.S. government securities, common and preferred stock, and mutual funds. Our Level 1 derivative assets and liabilities include those actively traded on exchanges.

•

Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit spreads, foreign exchange rates, and forward and spot prices for currencies. Our Level 2 investments include commercial paper, certificates of deposit, U.S. agency securities, foreign government bonds, mortgage- and asset-backed securities, corporate notes and bonds, and municipal securities. Our Level 2 derivative assets and liabilities include certain cleared swap contracts and over-the-counter forward, option, and swap contracts.

PART I

Item 1

•

Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 assets and liabilities include investments in corporate notes and bonds, municipal securities, and goodwill and intangible assets, when they are recorded at fair value due to an impairment charge. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities.

We measure equity investments without readily determinable fair values on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections.

Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.

Contract Balances and Other Receivables

As of September 30, 2025 and June 30, 2025, long-term accounts receivable, net of allowance for doubtful accounts, was $5.0 billion and $5.2 billion, respectively, and is included in other long-term assets in our consolidated balance sheets.

As of September 30, 2025 and June 30, 2025, other receivables related to activities to facilitate the purchase of server components were $14.4 billion and $8.2 billion, respectively, and are included in other current assets in our consolidated balance sheets.

We record financing receivables when we offer certain customers the option to acquire our software products and services offerings through a financing program in a limited number of countries. As of September 30, 2025 and June 30, 2025, our financing receivables, net were $3.9 billion and $4.3 billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets. We record an allowance for doubtful accounts which reflects our best estimate of credit losses inherent in the accounts receivable and financing receivable balances. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.

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 on the effective date in our annual reporting for fiscal year 2026. The standard can be applied either prospectively or retrospectively.

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.

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.

PART I

Item 1

The components of basic and diluted EPS were as follows:


(In millions, except per share amounts)


Three Months Ended September 30,	2025		2024

Net income available for common shareholders (A)	$	27,747	$	24,667


Weighted average outstanding shares of common stock (B)		7,433		7,433
Dilutive effect of stock-based awards		33		37


Common stock and common stock equivalents (C)		7,466		7,470


Earnings Per Share

Basic (A/B)	$	3.73	$	3.32
Diluted (A/C)	$	3.72	$	3.30

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

NOTE 3 — OTHER INCOME (EXPENSE), NET

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


(In millions)


Three Months Ended September 30,	2025			2024

Interest and dividends income	$	976		$	681
Interest expense		(698	)		(582	)
Net recognized gains (losses) on investments		(572	)		463
Net gains (losses) on derivatives		1,579			(338	)
Net gains (losses) on foreign currency remeasurements		(22	)		176
Other, net		(4,923	)		(683	)


Total	$	(3,660	)	$	(283	)

For the three months ended September 30, 2025 and 2024, other income (expense), net included $4.1 billion and $688 million, respectively, of net losses from investments in OpenAI, primarily net recognized losses on our equity method investment reflected in other, net.

Net Recognized Gains (Losses) on Investments

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


(In millions)


Three Months Ended September 30,	2025			2024

Realized gains from sales of available-for-sale securities	$	16		$	8
Realized losses from sales of available-for-sale securities		(10	)		(15	)
Impairments and allowance for credit losses		4			12


Total	$	10		$	5

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


(In millions)


Three Months Ended September 30,	2025			2024

Net realized gains on investments sold	$	71		$	65
Net unrealized gains (losses) on investments still held		(635	)		412
Impairments of investments		(18	)		(19	)


Total	$	(582	)	$	458

PART I

Item 1

NOTE 4 — INVESTMENTS

Investment Components

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


September 30, 2025

Changes in Fair Value Recorded in Other Comprehensive Income

Commercial paper	Level 2	$	9,044	$	0	$	0		$	9,044	$	8,597	$	447	$	0
Certificates of deposit	Level 2		4,478		0		0			4,478		4,434		44		0
U.S. government securities	Level 1		54,749		119		(1,238	)		53,630		1,143		52,487		0
U.S. agency securities	Level 2		5,584		0		0			5,584		2,100		3,484		0
Foreign government bonds	Level 2		392		13		(6	)		399		0		399		0
Mortgage- and asset-backed securities	Level 2		3,587		20		(23	)		3,584		0		3,584		0
Corporate notes and bonds	Level 2		12,246		174		(70	)		12,350		0		12,350		0
Corporate notes and bonds	Level 3		2,055		568		0			2,623		0		113		2,510
Municipal securities	Level 2		162		1		(5	)		158		0		158		0
Municipal securities	Level 3		104		0		(14	)		90		0		90		0


Total debt investments		$	92,401	$	895	$	(1,356	)	$	91,940	$	16,274	$	73,156	$	2,510


Changes in Fair Value Recorded in Net Income

Equity investments	Level 1								$	4,111	$	1,209	$	0	$	2,902
Equity investments	Other									4,871		0		0		4,871


Total equity investments									$	8,982	$	1,209	$	0	$	7,773


Cash									$	11,366	$	11,366	$	0	$	0
Derivatives, net (a)										1,189		0		7		1,182


Total									$	113,477	$	28,849	$	73,163	$	11,465

MICROSOFT CORP 10-Q