Microsoft (MSFT) 10-K risk factor changes: FY2024 vs FY2023

If we fail to comply, or if regulators assert we have failed to comply (including in response to complaints made by customers), it may lead to regulatory enforcement actions, which can result in significant monetary penalties, private lawsuits, reputational damage, blockage of [added: product offerings or of] international data transfers, and loss of customers.

The highest fines assessed under GDPR have recently been increasing, especially against large technology [removed: companies.][added: companies, and European data protection authorities have taken action to block or remove services from their markets.]

Our investment in gaining insights from data is becoming central to the value of the [removed: services, including AI services,] [added: services] we deliver to customers, [added: including AI services,] to operational efficiency and key opportunities in monetization, and to customer perceptions of quality.

Failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged noncompliant activity, [removed: as well as] negative [removed: publicity] [added: publicity,] and diversion of management time and effort.

Existing and increasing legal and regulatory requirements could adversely affect our results of operations. We are subject to a wide range of laws, regulations, and legal requirements in the U.S. and globally, including those that may apply to our products and online services offerings, and those that impose requirements related to user privacy, telecommunications, data storage and protection, [added: digital accessibility,] advertising, and online content.

This trend may continue and will result in these offerings being [removed: subjected] [added: subject] to additional data protection, security, law enforcement surveillance, and other obligations.

For example, [removed: in] the [removed: EU, an] [added: EU’s] AI Act [removed: is being considered, and] may [removed: entail increased] [added: increase] costs or [removed: decreased opportunities for] [added: impact] the [added: provision or] operation of our AI [added: models and] services in the European market.

Noncompliance could result in the imposition of [removed: penalties] [added: penalties, criminal sanctions,] or orders we cease the alleged noncompliant activity.

If our products do not meet customer expectations or legal requirements, we could [removed: lose sales opportunities or] face regulatory or legal [removed: actions.][added: actions, and our business, operations, financial condition, and results of operations could be adversely affected.]

These claims may arise from a wide variety of business practices and initiatives, including major new product [removed: releases such as Windows,] [added: releases,] AI services, significant business transactions, warranty or product claims, employment practices, and regulation.

[removed: The litigation] [added: Litigation] and other claims are subject to inherent uncertainties and management’s view of these matters may change in the future.

A material adverse impact [removed: in] [added: to] our [removed: consolidated] financial [removed: statements] [added: condition and results of operations] could occur for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable.

These events could negatively impact our [added: financial condition,] results of operations, [removed: financial condition,] and reputation.

We are currently under Internal Revenue Service [added: (“IRS”)] audit for prior tax [removed: years, with] [added: years and have received Notices of Proposed Adjustment (“NOPAs”) from] the [removed: primary unresolved issues relating] [added: IRS for the tax years 2004] to [removed: transfer pricing.][added: 2013.]

The final resolution of [removed: those audits,] [added: the proposed adjustments,] and other audits or litigation, may differ from the amounts recorded in our consolidated financial statements and [removed: may materially] [added: adversely] affect our [removed: consolidated financial statements] [added: results of operations] in the period or periods in which that determination is made.

In addition, changes in U.S. federal and state or international tax laws applicable to corporate multinationals, other [added: global] fundamental law changes currently being considered by many countries, including in the U.S., and changes in taxing jurisdictions’ administrative interpretations, decisions, policies, and positions may materially adversely [removed: impact] [added: affect] our [removed: consolidated] financial [removed: statements.][added: condition and results of operations.]

We face risks related to the protection and utilization of our intellectual property that may result in our business and operating results [removed: may be] [added: being] harmed. Protecting our intellectual property rights and combating unlicensed copying and use of our [removed: software] [added: software, source code,] and other intellectual property on a global basis is difficult.

Changes in the law may continue to weaken our ability to prevent the use of patented [removed: technology or collect revenue for licensing our patents.][added: technology.]

[removed: Finally, our] [added: Our] increasing engagement with open source software will also cause us to license our intellectual property rights broadly in certain situations.

If we are unable to protect our intellectual property, our [removed: revenue] [added: results of operations] may be adversely affected.

It may then become easier for third parties to compete with our products by copying functionality, which could adversely affect our [removed: revenue and operating results.][added: results of operations.]

Unauthorized [added: access to or] disclosure of source code [added: or other intellectual property] also could increase the security risks described elsewhere in these risk factors.

Third parties may claim that we infringe their intellectual property. From time to time, others claim we infringe their intellectual property [removed: rights.][added: rights, including current copyright infringement and other claims arising from AI training and output.]

To resolve these claims, we may enter into [removed: royalty and] [added: royalty-bearing data access or] licensing agreements on terms that are less favorable than currently available, stop selling or redesign affected products or services, or pay damages to satisfy indemnification commitments with our customers.

We have paid significant amounts to settle claims related to the use of technology and intellectual property rights and to procure intellectual property rights as part of our strategy to manage this risk, and may continue to do [removed: so.][added: so, which could adversely affect our results of operations.]

If our reputation or our brands are damaged, our business and [removed: operating] results [added: of operations] may be harmed.

We may experience backlash from customers, government entities, advocacy groups, employees, and other stakeholders that disagree with our product offering [removed: decisions or] [added: decisions,] public policy [removed: positions.][added: positions, or corporate philanthropic initiatives.]

Public scrutiny of our decisions regarding user privacy, data practices, [added: content,] or [removed: content.][added: development and deployment of AI.]

Data security breaches, [added: cybersecurity incidents, responsible AI failures,] compliance failures, or actions of partners or individual employees.

[removed: The proliferation of social] [added: Social] media may increase the likelihood, speed, and magnitude of negative brand events.

If our brands or reputation are damaged, it could [removed: negatively impact] [added: adversely affect] our [removed: revenues or margins,] [added: business, results of operations,] or ability to attract the most highly qualified employees.

Adverse economic or market conditions may harm our business. Worsening economic conditions, including inflation, recession, pandemic, or other changes in economic conditions, may cause lower IT spending and adversely affect our [removed: revenue.][added: results of operations.]

If demand for PCs, servers, and other computing devices declines, or consumer or business spending for those products declines, our [removed: revenue will] [added: results of operations may] be adversely affected.

If global financial markets decline for long periods, or if there is a downgrade of the U.S. government credit rating due to an actual or threatened default on government debt, our investment portfolio may be adversely affected and we could determine that more of our investments have experienced a decline in fair value, requiring impairment charges that could adversely affect our [removed: consolidated] financial [removed: statements.][added: condition and results of operations.]

Catastrophic events or geopolitical conditions may disrupt our business. A disruption or failure of our [removed: systems] [added: systems, operations,] or [removed: operations] [added: supply chain] because of a major earthquake, weather event, cyberattack, terrorist attack, pandemic, or other catastrophic event could cause delays in completing sales, providing services, or performing other critical functions.

A catastrophic event that results in the destruction or disruption of any of our critical business or IT systems, or the infrastructure or systems they rely on, such as power grids, could harm our ability to conduct normal business [added: operations or adversely affect our results of] operations.

Providing our customers with more services and solutions in the cloud puts a premium on the resilience of our systems and strength of our business continuity management plans and magnifies the potential [removed: impact] [added: negative consequences] of prolonged service [removed: outages in our consolidated financial statements.][added: outages.]

Abrupt political change, terrorist activity, and armed conflict, such as the ongoing conflict in Ukraine, pose [removed: a risk of general] economic [removed: disruption in affected countries,] [added: and other risks,] which may [removed: increase our operating costs and] negatively impact our ability to sell to and collect from [removed: customers] [added: customers, increase our operating costs, or otherwise disrupt our operations] in [removed: affected markets.][added: markets both directly and indirectly impacted by such events.]

Any of these changes may negatively [removed: impact] [added: affect] our [removed: revenues.][added: results of operations.]

The occurrence of regional epidemics or a global pandemic, such as COVID-19, may adversely affect our [added: business,] operations, financial condition, and results of operations.

Our AI systems offer users powerful tools and capabilities.

However, there may be instances where these systems are used in ways that are unintended or inappropriate.

In addition, some users may also engage in fraudulent or abusive activities through our cloud-based services, such as unauthorized account access, payment fraud, or terms of service violations including cryptocurrency mining or launching cyberattacks.

While are committed to detecting and controlling such misuse of our cloud-based and AI services, our efforts may not be effective, and we may incur reputational damage or experience adverse impacts to our business and results of operations.

RISKS RELATING TO THE EVOLUTION OF OUR BUSINESS

We make significant investments in products and services that may not achieve expected returns. We will continue to make significant investments in research, development, and marketing for existing products, services, and technologies.

In addition, we are focused on developing new AI platform services and incorporating AI into existing products and services.

We also invest in the development and acquisition of a variety of hardware for productivity, communication, and entertainment, including PCs, tablets, and gaming devices.

Investments in new technology are speculative.

Commercial success depends on many factors, including innovation, developer support, and effective distribution and marketing.

If customers do not perceive our latest offerings as providing significant new functionality or other value, they may reduce their purchases of new software and hardware products or upgrades, unfavorably affecting revenue.

We may not achieve significant revenue from new product, service, and distribution channel investments for several years, if at all.

New products and services may not be profitable or may not achieve operating margins as high as we have experienced historically.

We may not get engagement in certain features that drive post-sale monetization opportunities.

Our data-handling practices across our products and services will continue to be under scrutiny.

Perceptions of mismanagement, driven by regulatory activity or negative public reaction to our practices or product experiences, could negatively impact product and feature adoption.

Developing new technologies is complex.

It can require long development and testing periods.

We could experience significant delays in new releases or significant problems in creating new products or services.

These factors could adversely affect our business, financial condition, and results of operations.

Acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business. We expect to continue making acquisitions and entering into joint ventures and strategic alliances as part of our long-term business strategy.

For example, in March 2022 we completed our acquisition of Nuance Communications, Inc., and in October 2023 we completed our acquisition of Activision Blizzard, Inc. (“Activision Blizzard”).

In January 2023 we announced the third phase of our OpenAI strategic partnership.

Acquisitions and other transactions and arrangements involve significant challenges and risks, including that they do not advance our business strategy, that we get an unsatisfactory return on our investment, that they raise new compliance-related obligations and challenges, that we have difficulty integrating and retaining new employees, business systems, and technology, that they distract management from our other businesses, or that announced transactions may not be completed.

If an arrangement fails to adequately anticipate changing circumstances and interests of a party, it may result in early termination or renegotiation of the arrangement.

We also have limited ability to control or influence third parties with whom we have arrangements, which may impact our ability to realize the anticipated benefits.

The success of these transactions and arrangements depend in part on our ability to leverage them to enhance our existing products and services or develop compelling new ones, as well as the acquired companies’ ability to meet our policies and processes in areas such as data governance, privacy, and cybersecurity.

It may take longer than expected to realize the full benefits from these transactions and arrangements, such as increased revenue or enhanced efficiencies, or the benefits may ultimately be smaller than we expected.

In addition, an acquisition may be subject to challenge even after it has been completed.

For example, the Federal Trade Commission continues to challenge our Activision Blizzard acquisition and could, if successful, alter or unwind the transaction.

These events could adversely affect our business, operations, financial condition, and results of operations.

If our goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings. We acquire other companies and intangible assets and may not realize all the economic benefit from those acquisitions, which could cause an impairment of goodwill or intangibles.

We review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

We test goodwill for impairment at least annually.

Factors that may be a change in circumstances, indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable, include a decline in our stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in industry segments in which we participate.

We have in the past recorded, and may in the future be required to record, a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, negatively affecting our results of operations.

CYBERSECURITY, DATA PRIVACY, AND PLATFORM ABUSE RISKS

Cyberattacks and security vulnerabilities could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position.

Security of our information technology

Threats to IT security can take a variety of forms.

Compliance with evolving digital accessibility laws and standards will require engineering and is important to our efforts to empower all people and organizations to achieve more.

For example, compliance with the 2017 United States Tax Cuts and Jobs Act (“TCJA”) and possible future legislative changes may require the collection of information not regularly produced within the company, the use of estimates in our consolidated financial statements, and the exercise of significant judgment in accounting for its provisions.

As regulations and guidance evolve with respect to the TCJA or possible future legislative changes, and as we gather more information and perform more analysis, our results may differ from previous estimates and may materially affect our consolidated financial statements.

Additionally, licensees of our patents may fail to satisfy their obligations to pay us royalties or may contest the scope and extent of their obligations.

We may incur increased costs to effectively manage these aspects of our business.

If we are unsuccessful, it may adversely impact our revenues, cash flows, market share growth, and reputation.

[removed: The metrics are disclosed in the MD&A or] [added: Refer to Note 1 – Accounting Policies of] the Notes to Financial Statements (Part II, Item 8 of this Form [removed: 10-K).][added: 10-K) for further discussion.]

| (In millions, except [removed: percentages and] [added: percentages and] per share amounts) | | [removed: 2023] [added: 2024] | | | | [removed: 2022] [added: 2023] | | | | Percentage Change | | |

| Gross margin | | [added: $] | [removed: 146,052] [added: 171,008] | | | [added: $] | [removed: 135,620] [added: 146,052] | | | | [removed: 8%] [added: 17%] | |

| Operating income | | [added: $] | [removed: 88,523] [added: 109,433] | | | [added: $] | [removed: 83,383] [added: 88,523] | | | | [removed: 6%] [added: 24%] | |

| Net income | | [added: $] | [removed: 72,361] [added: 88,136] | | | [added: $] | [removed: 72,738] [added: 72,361] | | | | [removed: (1)%] [added: 22%] | |

| Diluted earnings per share | | [added: $] | [removed: 9.68] [added: 11.80] | | | [added: $] | [removed: 9.65] [added: 9.68] | | | | [removed: 0%] [added: 22%] | |

| Adjusted gross margin (non-GAAP) | | [added: $] | [removed: 146,204] [added: 171,008] | | | [added: $] | [removed: 135,620] [added: 146,204] | | | | [removed: 8%] [added: 17%] | |

| Adjusted operating income (non-GAAP) | | [added: $] | [removed: 89,694] [added: 109,433] | | | [added: $] | [removed: 83,383] [added: 89,694] | | | | [removed: 8%] [added: 22%] | |

| Adjusted net income (non-GAAP) | | [added: $] | [removed: 73,307] [added: 88,136] | | | [added: $] | [removed: 69,447] [added: 73,307] | | | | [removed: 6%] [added: 20%] | |

| Adjusted diluted earnings per share (non-GAAP) | | [added: $] | [removed: 9.81] [added: 11.80] | | | [added: $] | [removed: 9.21] [added: 9.81] | | | | [removed: 7%] [added: 20%] | |

| Severance, hardware-related impairment, and lease consolidation costs | | | [removed: 152] [added: 0] | | | | [removed: 0] [added: 152] | | | | * | |

| Severance, hardware-related impairment, and lease consolidation costs | | | [removed: 1,171] [added: 0] | | | | [removed: 0] [added: 1,171] | | | | * | |

| Severance, hardware-related impairment, and lease consolidation costs | | | [removed: 946] [added: 0] | | | | [removed: 0] [added: 946] | | | | * | |

| Severance, hardware-related impairment, and lease consolidation costs | | | [removed: 0.13] [added: 0] | | | | [removed: 0] [added: 0.13] | | | | * | |

Cash, cash equivalents, and short-term investments totaled [removed: $111.3] [added: $75.5] billion and [removed: $104.8] [added: $111.3] billion as of June 30, [removed: 2023] [added: 2024] and [removed: 2022,] [added: 2023,] respectively.

Equity [added: and other] investments were [removed: $9.9] [added: $14.6] billion and [removed: $6.9] [added: $9.9] billion as of June 30, [removed: 2023] [added: 2024] and [removed: 2022,] [added: 2023,] respectively.

Cash used in financing decreased [removed: $14.9] [added: $6.2] billion to [removed: $43.9] [added: $37.8] billion for fiscal year [removed: 2023, mainly] [added: 2024, primarily] due to a [removed: $10.5] [added: $5.0] billion decrease in common stock repurchases and a [removed: $6.3] [added: $3.3] billion [removed: decrease] [added: increase] in [removed: repayments] [added: proceeds from issuance] of debt, [added: net of repayments,] offset in part by a [removed: $1.7] [added: $2.0] billion increase in dividends paid.

Cash used in investing [removed: decreased $7.6] [added: increased $74.3] billion to [removed: $22.7] [added: $97.0] billion for fiscal year [removed: 2023,] [added: 2024, primarily] due to a [removed: $20.4] [added: $67.5] billion [removed: decrease] [added: increase] in cash used for acquisitions of companies, net of cash acquired, and purchases of intangible and other [removed: assets, offset in part by a $8.2 billion decrease in cash from net investment purchases, sales, and maturities,] [added: assets] and a [removed: $4.2] [added: $16.4] billion increase in additions to property and equipment.

We issue debt to take advantage of favorable pricing and liquidity in the debt markets, reflecting our credit [removed: rating and the low interest rate environment.][added: rating.]

The following table outlines the expected future recognition of unearned revenue as of June 30, [removed: 2023:][added: 2024:]

The following table summarizes the payments due by fiscal year for our outstanding contractual obligations as of June 30, [removed: 2023:][added: 2024:]

| (In millions) | | [removed: 2024] [added: 2025] | | | | Thereafter | | | | Total | | |

| Principal payments | | $ | [removed: 5,250] [added: 2,250] | | | $ | [removed: 47,616] [added: 48,971] | | | $ | [removed: 52,866] [added: 51,221] | |

| Operating and finance leases, including imputed interest (c) | | | [removed: 5,988] [added: 12,250] | | | | [removed: 73,852] [added: 160,475] | | | | [removed: 79,840] [added: 172,725] | |

During fiscal years [removed: 2023] [added: 2024] and [removed: 2022,] [added: 2023,] we repurchased [removed: 69] [added: 32] million shares and [removed: 95] [added: 69] million shares of our common stock for [removed: $18.4] [added: $12.0] billion and [removed: $28.0] [added: $18.4] billion, respectively, through our share repurchase [removed: programs.][added: program.]

As of June 30, [removed: 2023, $22.3] [added: 2024, $10.3] billion remained of our $60 billion share repurchase program.

During fiscal [removed: year 2023] [added: years 2024] and [removed: 2022,] [added: 2023,] our Board of Directors declared [removed: quarterly] dividends [removed: of $0.68 per share and $0.62 per share,] totaling [removed: $20.2] [added: $22.3] billion and [removed: $18.6] [added: $20.2] billion, respectively.

We expect capital expenditures to increase in coming years to support growth in our cloud offerings and our investments in AI [removed: infrastructure.][added: infrastructure and training.]

We have critical accounting estimates in the areas of revenue recognition, impairment of investment securities, goodwill, research and development costs, legal and other contingencies, income taxes, and [removed: inventories.][added: business combinations – valuation of intangible assets.]

Judgment is required to determine the [removed: stand-alone] [added: standalone] selling price (“SSP") for each distinct performance obligation.

Cash from operations increased $31.0 billion to $118.5 billion for fiscal year 2024, primarily due to an increase in cash received from customers.

| September 30, 2024 | | $ | 22,529 | |

| December 31, 2024 | | | 17,664 | |

| March 31, 2025 | | | 12,076 | |

| June 30, 2025 | | | 5,313 | |

| Thereafter | | | 2,602 | |

| Total | | $ | 60,184 | |

| Interest payments | | | 1,618 | | | | 27,041 | | | | 28,659 | |

| Construction commitments (b) | | | 29,892 | | | | 5,499 | | | | 35,391 | |

| Purchase commitments (d) | | | 68,280 | | | | 3,742 | | | | 72,022 | |

| Total | | $ | 114,290 | | | $ | 245,728 | | | $ | 360,018 | |

As of June 30, 2024, we had a remaining transition tax liability of $7.6 billion, of which $3.8 billion is short-term and payable in the first quarter of fiscal year 2025.

RECENT ACCOUNTING GUIDANCE

Business Combinations – Valuation of Intangible Assets

Accounting for business combinations requires significant judgments when allocating the purchase price to the estimated fair values of assets acquired and liabilities assumed at the acquisition date.

Determination of fair value involves estimates and assumptions which can be complex, most notably with respect to intangible assets.

Critical estimates used in the valuation of intangible assets include, but are not limited to, the amount and timing of projected cash flows, useful lives, and discount rates.

While management’s estimates of fair value are based on assumptions that are believed to be reasonable, these assumptions are inherently uncertain as they pertain to forward-looking views of our business and market conditions.

The judgments made in this valuation process could materially impact our consolidated financial statements.

Economic Conditions, Challenges, and Risks

The markets for software, devices, and cloud-based services are dynamic and highly competitive.

Our competitors are developing new software and devices, while also deploying competing cloud-based services for consumers and businesses.

The devices and form factors customers prefer evolve rapidly, influencing how users access services in the cloud and, in some cases, the user’s choice of which suite of cloud-based services to use.

Aggregate demand for our software, services, and devices is also correlated to global macroeconomic and geopolitical factors, which remain dynamic.

We must continue to evolve and adapt over an extended time in pace with this changing environment.

The investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and may decrease our operating margins.

We continue to identify and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services.

Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units (“GPUs”) and other components.

Our devices are primarily manufactured by third-party contract manufacturers.

For the majority of our products, we have the ability to use other manufacturers if a current vendor becomes unavailable or unable to meet our requirements.

However, some of our products contain certain components for which there are very few qualified suppliers.

Extended disruptions at these suppliers could impact our ability to manufacture devices on time to meet consumer demand.

Our success is highly dependent on our ability to attract and retain qualified employees.

We hire a mix of university and industry talent worldwide.

We compete for talented individuals globally by offering an exceptional working environment, broad customer reach, scale in resources, the ability to grow one’s career across many different products and businesses, and competitive compensation and benefits.

Our international operations provide a significant portion of our total revenue and expenses.

Many of these revenue and expenses are denominated in currencies other than the U.S. dollar.

As a result, changes in foreign exchange rates may significantly affect revenue and expenses.

Fluctuations in the U.S. dollar relative to certain foreign currencies reduced reported revenue and expenses from our international operations in fiscal year 2023.

On January 18, 2023, we announced decisions we made to align our cost structure with our revenue and customer demand, prioritize our investments in strategic areas, and consolidate office space.

As a result, we recorded a $1.2 billion charge in the second quarter of fiscal year 2023 (“Q2 charge”), which included employee severance expenses of $800 million, impairment charges resulting from changes to our hardware portfolio, and costs related to lease consolidation activities.

First, we reduced our overall workforce by approximately 10,000 jobs through the third quarter of fiscal year 2023 related to the Q2 charge, which represents less than 5% of our total employee base.

While we eliminated roles in some areas, we will continue to hire in key strategic areas.

Second, we are allocating both our capital and talent to areas of secular growth and long-term competitiveness, while divesting in other areas.

Third, we are consolidating our leases to create higher density across our workspaces, which impacted our financial results through the remainder of fiscal year 2023, and we may make similar decisions in future periods as we continue to evaluate our real estate needs.

Refer to Risk Factors (Part I, Item 1A of this Form 10-K) for a discussion of these factors and other risks.

Seasonality

Our revenue fluctuates quarterly and is generally higher in the second and fourth quarters of our fiscal year.

Second quarter revenue is driven by corporate year-end spending trends in our major markets and holiday season spending by consumers, and fourth quarter revenue is driven by the volume of multi-year on-premises contracts executed during the period.

Change in Accounting Estimate

In July 2022, we completed an assessment of the useful lives of our server and network equipment.

Due to investments in software that increased efficiencies in how we operate our server and network equipment, as well as advances in technology, we determined we should increase the estimated useful lives of both server and network equipment from four years to six years.

This change in accounting estimate was effective beginning fiscal year 2023.

Based on the carrying amount of server and network equipment included in property and equipment, net as of June 30, 2022, the effect of this change in estimate for fiscal year 2023 was an increase in operating income of $3.7 billion and net income of $3.0 billion, or $0.40 per both basic and diluted share.

PART II

Item 7

Reportable Segments

We report our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.

The segment amounts included in MD&A are presented on a basis consistent with our internal management reporting.

| Risk Categories | | Hypothetical Change | | June 30, [removed: 2023] [added: 2024] | | | | | Impact | |

| Foreign currency – Revenue | | 10% decrease in foreign exchange rates | | $ | [removed: (8,122] [added: (9,605] | ) | | | Earnings | |

| Foreign currency – Investments | | 10% decrease in foreign exchange rates | | | [removed: (29] [added: (38] | ) | | | Fair Value | |

| Interest rate | | 100 basis point increase in U.S. treasury interest rates | | | [removed: (1,832] [added: (1,343] | ) | | | Fair Value | |

| Credit | | 100 basis point increase in credit spreads | | | [removed: (354] [added: (318] | ) | | | Fair Value | |

| Equity | | 10% decrease in equity market prices | | | [removed: (705] [added: (1,078] | ) | | | Earnings | |

| Year Ended June 30, | | [removed: 2023] [added: 2024] | | | | [removed: 2022] [added: 2023] | | | | [removed: 2021] [added: 2022] | | |

| Product | | $ | [removed: 64,699] [added: 64,773] | | | $ | [removed: 72,732] [added: 64,699] | | | $ | [removed: 71,074] [added: 72,732] | |

| Service and other | | | [removed: 147,216] [added: 180,349] | | | | [removed: 125,538] [added: 147,216] | | | | [removed: 97,014] [added: 125,538] | |

| Total revenue | | | [removed: 211,915] [added: 245,122] | | | | [removed: 198,270] [added: 211,915] | | | | [removed: 168,088] [added: 198,270] | |

| Product | | | [removed: 17,804] [added: 15,272] | | | | [removed: 19,064] [added: 17,804] | | | | [removed: 18,219] [added: 19,064] | |

| Service and other | | | [removed: 48,059] [added: 58,842] | | | | [removed: 43,586] [added: 48,059] | | | | [removed: 34,013] [added: 43,586] | |

| Total cost of revenue | | | [removed: 65,863] [added: 74,114] | | | | [removed: 62,650] [added: 65,863] | | | | [removed: 52,232] [added: 62,650] | |

| Gross margin | | | [removed: 146,052] [added: 171,008] | | | | [removed: 135,620] [added: 146,052] | | | | [removed: 115,856] [added: 135,620] | |

| Research and development | | | [removed: 27,195] [added: 29,510] | | | | [removed: 24,512] [added: 27,195] | | | | [removed: 20,716] [added: 24,512] | |

| Sales and marketing | | | [removed: 22,759] [added: 24,456] | | | | [removed: 21,825] [added: 22,759] | | | | [removed: 20,117] [added: 21,825] | |

| General and administrative | | | [removed: 7,575] [added: 7,609] | | | | [removed: 5,900] [added: 7,575] | | | | [removed: 5,107] [added: 5,900] | |

| Operating income | | | [removed: 88,523] [added: 109,433] | | | | [removed: 83,383] [added: 88,523] | | | | [removed: 69,916] [added: 83,383] | |

| Other [removed: income,] [added: income (expense),] net | | | [removed: 788] [added: (1,646] | [added: )] | | | [removed: 333] [added: 788] | | | | [removed: 1,186] [added: 333] | |

| Income before income taxes | | | [removed: 89,311] [added: 107,787] | | | | [removed: 83,716] [added: 89,311] | | | | [removed: 71,102] [added: 83,716] | |

| Provision for income taxes | | | [removed: 16,950] [added: 19,651] | | | | [removed: 10,978] [added: 16,950] | | | | [removed: 9,831] [added: 10,978] | |

| Net income | | $ | [removed: 72,361] [added: 88,136] | | | $ | [removed: 72,738] [added: 72,361] | | | $ | [removed: 61,271] [added: 72,738] | |

| Basic | | $ | [removed: 9.72] [added: 11.86] | | | $ | [removed: 9.70] [added: 9.72] | | | $ | [removed: 8.12] [added: 9.70] | |

| Diluted | | $ | [removed: 9.68] [added: 11.80] | | | $ | [removed: 9.65] [added: 9.68] | | | $ | [removed: 8.05] [added: 9.65] | |

| Basic | | | [removed: 7,446] [added: 7,431] | | | | [removed: 7,496] [added: 7,446] | | | | [removed: 7,547] [added: 7,496] | |

| Diluted | | | [removed: 7,472] [added: 7,469] | | | | [removed: 7,540] [added: 7,472] | | | | [removed: 7,608] [added: 7,540] | |

| Net change related to derivatives | | | [removed: (14] [added: 24] | [removed: )] | | | [removed: 6] [added: (14] | [added: )] | | | [removed: 19] [added: 6] | |

| Net change related to investments | | | [removed: (1,444] [added: 957] | [removed: )] | | | [removed: (5,360] [added: (1,444] | ) | | | [removed: (2,266] [added: (5,360] | ) |

| Translation adjustments and other | | | [removed: (207] [added: (228] | ) | | | [removed: (1,146] [added: (207] | ) | | | [removed: 873] [added: (1,146] | [added: )] |

| Other comprehensive [removed: loss] [added: income (loss)] | | | [removed: (1,665] [added: 753] | [removed: )] | | | [removed: (6,500] [added: (1,665] | ) | | | [removed: (1,374] [added: (6,500] | ) |

| Comprehensive income | | $ | [removed: 70,696] [added: 88,889] | | | $ | [removed: 66,238] [added: 70,696] | | | $ | [removed: 59,897] [added: 66,238] | |

| June 30, | | [added: | 2024 | | | |] 2023 | | | | 2022 | | [removed: |]

| Cash and cash equivalents | | $ | [removed: 34,704] [added: 18,315] | | | $ | [removed: 13,931] [added: 34,704] | |

| Short-term investments | | | [removed: 76,558] [added: 57,228] | | | | [removed: 90,826] [added: 76,558] | |

| Total cash, cash equivalents, and short-term investments | | | [removed: 111,262] [added: 75,543] | | | | [removed: 104,757] [added: 111,262] | |

| Accounts receivable, net of allowance for doubtful accounts of [removed: $650] [added: $830] and [removed: $633] [added: $650] | | | [removed: 48,688] [added: 56,924] | | | | [removed: 44,261] [added: 48,688] | |

| Inventories | | | [removed: 2,500] [added: 1,246] | | | | [removed: 3,742] [added: 2,500] | |

| Other current assets | | | [removed: 21,807] [added: 26,021] | | | | [removed: 16,924] [added: 21,807] | |

| Total current assets | | | [removed: 184,257] [added: 159,734] | | | | [removed: 169,684] [added: 184,257] | |

| Property and equipment, net of accumulated depreciation of [removed: $68,251] [added: $76,421] and [removed: $59,660] [added: $68,251] | | | [removed: 95,641] [added: 135,591] | | | | [removed: 74,398] [added: 95,641] | |

| Short-term debt | | | 6,693 | | | | 0 | |

| Net income | | $ | 88,136 | | | $ | 72,361 | | | $ | 72,738 | |

| Proceeds from issuance of debt, maturities of 90 days or less, net | | | 5,250 | | | | 0 | | | | 0 | |

| Proceeds from issuance of debt | | | 24,395 | | | | 0 | | | | 0 | |

| Year Ended June 30, | | 2024 | | | | 2023 | | | | 2022 | | |

| Stock-based compensation expense | | | 10,734 | | | | 9,611 | | | | 7,502 | |

| Net income | | | 88,136 | | | | 72,361 | | | | 72,738 | |

| Other comprehensive income (loss) | | | 753 | | | | (1,665 | ) | | | (6,500 | ) |

| Year Ended June 30, | | | 2024 | | | | 2023 | | | | 2022 | |

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.

Our intangible assets are subject to amortization and are amortized over the estimated useful life in proportion to the economic benefits received.

Related Party Transactions

In March 2024, we entered into an agreement with Inflection AI, Inc. (“Inflection”), pursuant to which we obtained a non-exclusive license to Inflection’s intellectual property.

Reid Hoffman, a member of our Board of Directors, is a co-founder of and serves on the board of directors of Inflection.

As of the date of the agreement with Inflection, Reprogrammed Interchange LLC (“Reprogrammed”) and entities affiliated with Greylock Ventures (“Greylock”) each held less than a 10% equity interest in Inflection.

Mr. Hoffman may be deemed to beneficially own the shares held by Reprogrammed and Greylock by virtue of his relationship with such entities.

Mr. Hoffman did not participate in any portions of the meetings of our Board of Directors or any committee thereof to review and approve the transaction with Inflection.

Recent Accounting Guidance

Segment Reporting – Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standards Board (“FASB”) issued a new standard to improve reportable segment disclosures.

The guidance expands the disclosures required for reportable segments in our annual and interim consolidated financial statements, primarily through enhanced disclosures about significant segment expenses.

The standard will be effective for us beginning with our annual reporting for fiscal year 2025 and interim periods thereafter, with early adoption permitted.

We are currently evaluating the impact of this standard on our segment disclosures.

Income Taxes – Improvements to Income Tax Disclosures

In December 2023, the FASB issued a new standard to improve income tax disclosures.

The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures.

The standard will be effective for us beginning with our annual reporting for fiscal year 2026, with early adoption permitted.

We are currently evaluating the impact of this standard on our income tax disclosures.

| Year Ended June 30, | | 2024 | | | | 2023 | | | | 2022 | | |

| Year Ended June 30, | | 2024 | | | | 2023 | | | | 2022 | | |

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

| Year Ended June 30, | | 2024 | | | | 2023 | | | | 2022 | | |

| Year Ended June 30, | | 2024 | | | | 2023 | | | | 2022 | | |

| June 30, 2024 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| U.S. government securities | | | Level 1 | | | | 49,603 | | | | 4 | | | | (2,948 | ) | | | 46,659 | | | | 14 | | | | 46,645 | | | | 0 | |

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

| Equity investments | | | Level 1 | | | | | | | | | | | | | | | $ | 3,547 | | | $ | 561 | | | $ | 0 | | | $ | 2,986 | |

| | | | | | | | | | | | | |

| Cash premium on debt exchange | | | 0 | | | | 0 | | | | (1,754 | ) |

| Cumulative effect of accounting changes | | | 0 | | | | 0 | | | | (32 | ) |

| Cumulative effect of accounting changes | | | 0 | | | | 0 | | | | 10 | |

Based on the carrying amount of server and network equipment included in property and equipment, net as of June 30, 2022, the effect of this change in estimate for fiscal year 2023 was an increase in operating income of $3.7 billion and net income of $3.0 billion, or $0.40 per both basic and diluted share.

Employee Severance

On January 18, 2023, we announced a decision to reduce our overall workforce by approximately 10,000 jobs through the third quarter of fiscal year 2023.

During the three months ended December 31, 2022, we recorded $800 million of employee severance expenses related to these job eliminations as part of an ongoing employee benefit plan.

These employee severance expenses were incurred as part of a corporate program, and were included in general and administrative expenses in our consolidated income statements and allocated to our segments based on relative gross margin.

Refer to Note 19 – Segment Information and Geographic Data for further information.

Our intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of benefit, ranging from one to 20 years.

| June 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| U.S. government securities | | | Level 1 | | | | 79,696 | | | | 29 | | | | (2,178 | ) | | | 77,547 | | | | 9 | | | | 77,538 | | | | 0 | |

| Total debt investments | | | | | | $ | 98,118 | | | $ | 53 | | | $ | (2,814 | ) | | $ | 95,357 | | | $ | 4,539 | | | $ | 90,818 | | | $ | 0 | |

| Equity investments | | | Level 1 | | | | | | | | | | | | | | | $ | 1,590 | | | $ | 1,134 | | | $ | 0 | | | $ | 456 | |

| Total equity investments | | | | | | | | | | | | | | | | | | $ | 8,025 | | | $ | 1,134 | | | $ | 0 | | | $ | 6,891 | |

| Cash | | | | | | | | | | | | | | | | | | $ | 8,258 | | | $ | 8,258 | | | $ | 0 | | | $ | 0 | |

| Total | | | | | | | | | | | | | | | | | | $ | 111,648 | | | $ | 13,931 | | | $ | 90,826 | | | $ | 6,891 | |

| June 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | | |

| U.S. government and agency securities | | $ | 59,092 | | | $ | (1,835 | ) | | $ | 2,210 | | | $ | (352 | ) | | $ | 61,302 | | | $ | (2,187 | ) |

| Corporate notes and bonds | | | 9,443 | | | | (477 | ) | | | 786 | | | | (77 | ) | | | 10,229 | | | | (554 | ) |

| Municipal securities | | | 178 | | | | (12 | ) | | | 74 | | | | (7 | ) | | | 252 | | | | (19 | ) |

| Total | | $ | 69,641 | | | $ | (2,368 | ) | | $ | 3,138 | | | $ | (446 | ) | | $ | 72,779 | | | $ | (2,814 | ) |

| Total | | $ | 99,869 | | | $ | 95,332 | |

We [removed: are] [added: remain] committed to addressing racial injustice and inequity [removed: in the United States for Black] and [removed: African American communities and] helping improve lived experiences at Microsoft, in employees’ communities, and beyond.

In fiscal year [removed: 2023,] [added: 2024,] we [removed: collaborated] [added: continued to collaborate] with partners and worked within neighborhoods and communities to [removed: launch and scale a number of] [added: advance] projects and [removed: programs, including:][added: programs.]

[removed: Growing] [added: We grew] our Nonprofit Tech Acceleration for Black and African American Communities program, [removed: which uses data, technology, and partnerships] to help more than [removed: 2,000] [added: 3,000] local organizations [added: in nearly 1,900 Black and African American communities use technical solutions] to modernize and streamline operations.

[removed: We] [added: Additionally, we] enriched our supplier pipeline, achieving our goal to spend $500 million with double the number of Black- and African American-owned suppliers.

[removed: After helping over 80 million jobseekers around the world access digital skilling resources, we introduced a new] [added: Microsoft’s] Skills for Jobs initiative [added: aims] to support a more skills-based labor market, with greater flexibility and accessible learning paths to develop the right skills needed for the most in-demand jobs.

[removed: Our Skills for Jobs] [added: This] initiative brings together [removed: learning resources, certification opportunities,] [added: classes, Career Essentials Certificates,] and [removed: job-seeker tools] [added: other resources] from LinkedIn, GitHub, and Microsoft Learn, and is built on data insights drawn from LinkedIn’s Economic Graph.

We also launched a [removed: national] campaign [added: in the United States in 2021] to help skill and recruit 250,000 people into the [added: nation’s] cybersecurity workforce by 2025, representing half of the country’s workforce shortage.

[removed: We have expanded the] [added: The] cyber skills initiative [added: has expanded] to 27 additional countries that show elevated cyberthreat risks coupled with significant gaps in their cybersecurity workforces, [removed: partnering] [added: where we’ve partnered] with nonprofits and other educational institutions to train the next generation of cybersecurity workers.

[removed: To address this, in] [added: In] June [removed: 2023] [added: 2023,] we launched [removed: a new] [added: an] AI Skills [removed: Initiative] [added: initiative] to help everyone learn how to harness the power of AI.

We also launched a new global grant challenge to uncover new ways of training workers on generative AI and [removed: are providing] [added: provide] greater access to digital learning events and [removed: resources for everyone to improve their AI fluency.][added: resources.]

As of June 30, [removed: 2023,] [added: 2024,] we employed approximately [removed: 221,000] [added: 228,000] people on a full-time basis, [removed: 120,000] [added: 126,000] in the U.S. and [removed: 101,000] [added: 102,000] internationally.

Of the total employed people, [removed: 89,000] [added: 86,000] were in operations, including [removed: manufacturing, distribution,] product [removed: support,] [added: support] and consulting [removed: services; 72,000] [added: services, datacenter operations, and manufacturing and distribution; 81,000] were in product research and development; 45,000 were in sales and marketing; and [removed: 15,000] [added: 16,000] were in general and administration.

Our employee listening systems enable us to gather feedback directly from our workforce to inform our programs and employee needs [removed: globally.][added: globally, giving us real-time insights into ways we can support our employees.]

[removed: We] [added: As reported in our Global Diversity and Inclusion Reports, we] monitor pay equity and career progress across multiple dimensions.

Our total compensation opportunity is highly differentiated and [removed: is] market competitive.

Our intended result is a global performance and development approach that fosters our culture, [added: drives company performance,] and competitive compensation that ensures equitable pay by role while supporting pay for performance.

We have invested significantly in [removed: wellbeing,] [added: employee wellbeing] and offer a differentiated benefits package which includes many physical, emotional, and financial wellness [removed: programs including counseling through the Microsoft CARES Employee Assistance Program, mental wellbeing support, flexible fitness benefits, disability accommodations, savings and investment tools, adoption assistance, and back-up care for children and elders.][added: programs.]

[removed: Finally, our] [added: Our] Occupational Health and Safety program helps [removed: ensure employees can stay safe] [added: to protect employees’ safety] while they are working.

We [added: also have] introduced Hybrid Workplace Flexibility [removed: Guidance] [added: guidance] to better support leaders, managers, and employees in hybrid work scenarios.

As a company, we will continue to leverage data and research to inform decision making, balancing the needs of [added: the] business, team, and individual.

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 [added: Copilot for] Microsoft [removed: 365 Copilot.][added: 365.]

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

Dynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, [removed: CRM (including Customer Insights),] [added: CRM,] Power Apps, and Power Automate; and on-premises ERP and CRM applications.

Growth depends on our ability to reach new users in new markets such as frontline workers, small and medium businesses, and growth markets, as well as add value to our core product and service offerings to span [added: AI and] productivity categories such as communication, collaboration, analytics, security, and compliance.

Growth depends on our ability to reach new users, add value to our core product [removed: set,] [added: set with new features including AI tools,] and continue to expand our product and service offerings into new markets.

In addition to LinkedIn’s free services, LinkedIn offers monetized [removed: solutions:] [added: solutions designed to offer AI-enabled insights and productivity:] Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions.

Premium Subscriptions enable professionals to manage their professional identity, grow their network, find jobs, [added: access knowledge,] and connect with talent through additional services like premium search.

Growth will depend on our ability to increase the number of LinkedIn members and our ability to continue offering [added: insight and AI-enabled] services that provide value for our members and increase their engagement.

LinkedIn revenue is mainly affected by demand from enterprises and [removed: professional organizations] [added: professionals] for subscriptions to Talent Solutions, Sales Solutions, and Premium Subscriptions offerings, as well as member engagement and the quality of the sponsored content delivered to those members to drive Marketing Solutions.

Dynamics provides cloud-based and on-premises business solutions for financial management, enterprise resource planning (“ERP”), customer relationship management (“CRM”), [added: and] supply chain management, [removed: and] [added: as well as] other [added: low code] application development platforms [added: and AI offerings,] for small and medium businesses, large organizations, and divisions of global enterprises.

Dynamics revenue is driven by the number of users licensed and applications consumed, expansion of average revenue per user, and the continued shift to Dynamics 365, a unified set of cloud-based intelligent business applications, including [added: our low code development platforms, such as] Power Apps and Power Automate.

Competitors to Office include software and global application vendors, such as Apple, Cisco Systems, [removed: Meta,] Google, [removed: Okta,] [added: Meta,] Proofpoint, Slack, Symantec, Zoom, and numerous web-based and mobile application competitors as well as local application developers.

[removed: Okta, Proofpoint,] [added: Proofpoint] and Symantec provide security solutions across email security, information protection, [removed: identity,] and governance.

Dynamics competes with cloud-based and on-premises business solution providers such as Oracle, Salesforce, [added: SAP, Service Now, UI Path,] and [removed: SAP.][added: WorkDay.]

Enterprise [removed: Services,] [added: and partner services,] including Enterprise Support Services, Industry [removed: Solutions (formerly Microsoft Consulting Services), and] [added: Solutions,] Nuance professional [removed: services.][added: services, Microsoft Partner Network, and Learning Experience.]

Customers can use Azure through our global network of datacenters for computing, networking, storage, mobile and web application services, AI, [removed: IoT,] [added: Internet of Things (“IoT”),] cognitive services, and machine learning.

[removed: Customers] [added: With Azure’s purpose-built, AI-optimized infrastructure, customers] can [removed: integrate] [added: use a variety of] large language models and [removed: develop] [added: developer tools to create] the next generation of AI apps and services.

Enterprise [added: and Partner] Services

Enterprise [added: and Partner] Services, including Enterprise Support Services, Industry Solutions, [removed: and] Nuance [removed: Professional Services,] [added: professional services, Microsoft Partner Network, and Learning Experience,] assist customers in developing, deploying, and managing Microsoft server solutions, Microsoft desktop solutions, and Nuance conversational AI and ambient intelligent solutions, along with providing training and certification to developers and IT professionals on various Microsoft products.

Azure faces diverse competition from companies such as Amazon, [added: Broadcom,] Google, IBM, Oracle, [removed: VMware,] and open source offerings.

Even amid the challenges, we remain optimistic.

We’re encouraged by ongoing progress across our campuses and datacenters, and throughout our value chain.

In June 2020, we outlined a series of multi-year commitments designed to address the racial injustice and inequity experienced by racial and ethnic minorities in the United States, including Black and African American communities.

We also expanded our Technology Education and Learning Support (“TEALS”) program to reach nearly 550 high schools across 21 racial equity expansion regions with the support of nearly 1,500 volunteers, 12% of whom identify as Black or African American.

We have committed $150 million in Minority Depository Institutions and funds supporting Black and African American-owned small businesses.

These commitments drive sustained impact by directly enabling an increase of funds into local communities, improving diverse, small-business access to capital, and increasing skill development.

We continue to partner with diverse-owned banking partners and asset managers to catalyze growth and industry participation.

We have also provided 162 low- or no-interest loans to our small to medium-sized partners through our Partner Capital Fund.

We also continue to make progress toward our overall commitment to double the number of Black and African American and Hispanic and Latinx leaders in the U.S. by 2025.

Our goal was to train and certify 10 million learners by 2025.

As of May 2024, we have surpassed that goal, training and certifying 12.6 million learners.

Additionally, we extended our reach in rural communities, including through our TechSpark initiative in the United States.

As of June 2024, we’ve helped more than 2.5 million people in 92% of the world’s countries learn how to use AI.

Our culture also embeds the security of customers and Microsoft as a priority for every employee and across all of our organizations.

We design our programs to attract, reward, and retain top talent, enable our employees’ continual growth, and reinforce our culture and values.

Diversity and inclusion are core to our business.

We encourage every person at Microsoft to play an active role in creating an inclusive environment.

We believe providing employees with access to continual learning enables them to drive impact for the company.

We provide individuals and teams with access to first and third-party content resources across professions, disciplines, and roles, and offer skilling opportunities to support employees’ growth while driving organizations’ needs.

Our Azure Security offerings include our cloud security solution and security information and event management solution, which compete with companies such as Palo Alto Networks and Cisco.

Growth of the AI PC category

*Microsoft AI* – focuses on delivering online experiences targeted at consumers (including Bing, Copilot, Start/MSN, and other advertising-based services) and developing advanced AI models.

These volume licensing programs have varying programmatic requirements and benefits to best meet the needs of our customers.

GOVERNMENT REGULATION

We are subject to a wide range of laws, regulations, and legal requirements in the U.S. and globally, including those that may apply to our products and online services offerings, and those that impose requirements related to user privacy, telecommunications, data storage and protection, advertising, and online content.

How these laws and regulations apply to our business is often unclear, subject to change over time, and sometimes may be inconsistent from jurisdiction to jurisdiction.

To comply with the accelerating global regulatory obligations, we established a regulatory governance framework and to create a repeatable system-focused approach to regulatory governance with an initial focus on four domains: Responsible AI, Privacy, Digital Safety, and Cybersecurity.

The framework is designed to help us maintain customer trust and confidence in our products, remain in compliance with regulators around the globe, and effectively scale our capability to address the growing number of complex regulations.

Through the framework, our legal and regulatory subject matter experts ingest regulations, develop standards and implementation guidance, and, when appropriate, work with our engineers to develop and implement products to monitor compliance.

Our business teams, with legal support, manage the compliance programs and prepare external regulatory and commercial reporting, and our internal audit teams conduct reviews of our programs and processes.

While we intended to create a unified approach to regulatory compliance, some of the programs and processes established pursuant to the framework are tailored to meet specific regulatory obligations, such as with the creation of independent compliance functions required by the European Union (“EU”) Digital Markets Act and the EU Digital Services Act, which oversee, monitor, and assess the company’s compliance with these acts.

For a description of the risks we face related to regulatory matters, refer to Risk Factors (Part I, Item 1A of this Form 10-K).

Ms. Hogan was appointed Executive Vice President and Chief Human Resources Officer in June 2023.

He served as Executive Vice President and Commercial Chief Marketing Officer from March 2020.

Mr. Numoto served as a Corporate Vice President, Cloud Marketing from January 2012.

Prior to that, Mr. Numoto served as a Corporate Vice President for Office 365 Marketing from 2004, where he led the transformation from traditional on-premises packaged software to the introduction of Office 365.

Since joining Microsoft in 1997, Mr. Numoto has held multiple roles in Windows Program Management and Office Marketing.

If we do not continue to innovate and provide products, devices, and services that appeal to businesses and consumers, we may not remain competitive, which may adversely affect our business, financial condition, and results of operations.

For all of these reasons, we may not be able to compete successfully against our current and future competitors, which may adversely affect our business, operations, financial condition, and results of operations.

This may adversely affect our operations, financial condition, and results of operations.

Our growth depends on securely delivering continuous innovation and advancing our leading productivity and collaboration tools and services, including Office 365, Dynamics 365, and LinkedIn.

Microsoft 365 brings together Office 365, Windows, and Enterprise Mobility + Security to help organizations empower their employees with AI-backed tools that unlock creativity, increase collaboration, and fuel innovation, all the while enabling compliance coverage and data protection.

Microsoft Teams is a comprehensive platform for work, with meetings, calls, chat, collaboration, and business process automation.

Microsoft Viva is an employee experience platform that brings together communications, knowledge, learning, resources, and insights.

Microsoft 365 Copilot combines next-generation AI with business data in the Microsoft Graph and Microsoft 365 applications.

Together with the Microsoft Cloud, Dynamics 365, Microsoft Teams, and our AI offerings bring a new era of collaborative applications that optimize business functions, processes, and applications to better serve customers and employees while creating more business value.

Microsoft Power Platform is helping domain experts drive productivity gains with low-code/no-code tools, robotic process automation, virtual agents, and business intelligence.

In a dynamic labor market, LinkedIn is helping professionals use the platform to connect, learn, grow, and get hired.

Build the Intelligent Cloud and Intelligent Edge Platform

As digital transformation and adoption of AI accelerates and revolutionizes more business workstreams, organizations in every sector across the globe can address challenges that will have a fundamental impact on their success.

For enterprises, digital technology empowers employees, optimizes operations, engages customers, and in some cases, changes the very core of products and services.

We continue to invest in high performance and sustainable computing to meet the growing demand for fast access to Microsoft services provided by our network of cloud computing infrastructure and datacenters.

Our cloud business benefits from three economies of scale: datacenters that deploy computational resources at significantly lower cost per unit than smaller ones; datacenters that coordinate and aggregate diverse customer, geographic, and application demand patterns, improving the utilization of computing, storage, and network resources; and multi-tenancy locations that lower application maintenance labor costs.

The Microsoft Cloud provides the best integration across the technology stack while offering openness, improving time to value, reducing costs, and increasing agility.

Being a global-scale cloud, Azure uniquely offers hybrid consistency, developer productivity, AI capabilities, and trusted security and compliance.

We see more emerging use cases and needs for compute and security at the edge and are accelerating our innovation across the spectrum of intelligent edge devices, from Internet of Things (“IoT”) sensors to gateway devices and edge hardware to build, manage, and secure edge workloads.

Our AI platform, Azure AI, is helping organizations transform, bringing intelligence and insights to the hands of their employees and customers to solve their most pressing challenges.

Organizations large and small are deploying Azure AI solutions to achieve more at scale, more easily, with the proper enterprise-level and responsible AI protections.

We have a long-term partnership with OpenAI, a leading AI research and deployment company.

We deploy OpenAI’s models across our consumer and enterprise products.

As OpenAI’s exclusive cloud provider, Azure powers all of OpenAI's workloads.

We have also increased our investments in the development and deployment of specialized supercomputing systems to accelerate OpenAI’s research.

Our hybrid infrastructure offers integrated, end-to-end security, compliance, identity, and management capabilities to support the real-world needs and evolving regulatory requirements of commercial customers and enterprises.

Our industry clouds bring together capabilities across the entire Microsoft Cloud, along with industry-specific customizations.

Azure Arc simplifies governance and management by delivering a consistent multi-cloud and on-premises management platform.

Nuance, a leader in conversational AI and ambient intelligence across industries including healthcare, financial services, retail, and telecommunications, joined Microsoft in 2022.

Microsoft and Nuance enable organizations to accelerate their business goals with security-focused, cloud-based solutions infused with AI.

We are accelerating our development of mixed reality solutions with new Azure services and devices.

Microsoft Mesh enables organizations to create custom, immersive experiences for the workplace to help bring remote and hybrid workers and teams together.

PART I

Item 1

The ability to convert data into AI drives our competitive advantage.

The Microsoft Intelligent Data Platform is a leading cloud data platform that fully integrates databases, analytics, and governance.

The platform empowers organizations to invest more time creating value rather than integrating and managing their data.

Microsoft Fabric is an end-to-end, unified analytics platform that brings together all the data and analytics tools that organizations need.

GitHub Copilot is at the forefront of AI-powered software development, giving developers a new tool to write code easier and faster so they can focus on more creative problem-solving.

From GitHub to Visual Studio, we provide a developer tool chain for everyone, no matter the technical experience, across all platforms, whether Azure, Windows, or any other cloud or client platform.

Windows also plays a critical role in fueling our cloud business with Windows 365, a desktop operating system that’s also a cloud service.

From another internet-connected device, including Android or macOS devices, users can run Windows 365, just like a virtual machine.

Additionally, we are extending our infrastructure beyond the planet, bringing cloud computing to space.

| | For the Fiscal Year Ended June 30, [removed: 2023] [added: 2024] |

As of December 31, [removed: 2022,] [added: 2023,] the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was [removed: $1.8] [added: $2.8] trillion based on the closing sale price as reported on the NASDAQ National Market System.

As of July [removed: 24, 2023,] [added: 25, 2024,] there were [removed: 7,429,763,722] [added: 7,433,038,381] shares of common stock outstanding.

Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on December [removed: 7, 2023] [added: 10, 2024] are incorporated by reference into Part III.

For the Fiscal Year Ended June 30, [removed: 2023][added: 2024]

| | | Item 1. | | [Business](#item_1_business) | | [removed: 4] [added: 3] | |

| | | | | [Information about our Executive Officers](#information_about_our_executive_ficers) | | [removed: 20] [added: 18] | |

| | | Item 1A. | | [Risk Factors](#item_1a_risk_factors) | | [removed: 23] [added: 20] | |

| | | Item 1B. | | [Unresolved Staff Comments](#item_1b_unresolved_staff_comments) | | [removed: 37] [added: 34] | |

| | | Item 2. | | [Properties](#item_2_properties) | | [removed: 37] [added: 36] | |

| | | Item 3. | | [Legal Proceedings](#item_3_legal_proceedings) | | [removed: 37] [added: 36] | |

| | | Item 4. | | [Mine Safety Disclosures](#item_4_mine_safety_disclosures) | | [removed: 37] [added: 36] | |

| | | Item 5. | | [Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](#item5_market_for_registrants) | | [removed: 38] [added: 37] | |

| | | Item 6. | | [\[Reserved\]](#item_6_reserved) | | [removed: 39] [added: 38] | |

| | | Item 7. | | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#item_7_managements_discussion_analysis_f) | | [removed: 40] [added: 39] | |

| | | Item 7A. | | [Quantitative and Qualitative Disclosures [removed: about] [added: About] Market Risk](#item_7a_quantitative_qualitative_disclos) | | [removed: 57] [added: 55] | |

| | | Item 8. | | [Financial Statements and Supplementary Data](#item_8_financial_statements_and_supplem) | | [removed: 58] [added: 56] | |

| | | Item 9. | | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#item_9_changes_in_disagreements_with_acc) | | [removed: 99] [added: 98] | |

| | | Item 9A. | | [Controls and Procedures](#item_9a_controls_procedures) | | [removed: 99] [added: 98] | |

| | | | | [Report of Management on Internal Control over Financial Reporting](#report_management_on_internal_control_ov) | | [removed: 99] [added: 98] | |

| | | | | [Report of Independent Registered Public Accounting Firm](#report_independent_registered_public_acc) | | [removed: 100] [added: 99] | |

| | | Item 11. | | [Executive Compensation](#item_11_executive_compensation) | | [removed: 101] [added: 102] | |

| | | Item 12. | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#item_12_security_ownership_certain_benef) | | [removed: 101] [added: 102] | |

| | | Item 13. | | [Certain Relationships and Related Transactions, and Director Independence](#item_13_certain_relationships_related_tr) | | [removed: 101] [added: 102] | |

| | | Item 14. | | [Principal Accountant Fees and Services](#item_14_principal_accounting_fees_servic) | | [removed: 101] [added: 102] | |

| | | Item 15. | | [Exhibit and Financial Statement Schedules](#item_15_exhibits_financial_statement_sch) | | [removed: 102] [added: 103] | |

| | | Item 16. | | [Form 10-K Summary](#item_16_form_10k_summary) | | [removed: 108] [added: 110] | |

Microsoft is a technology company [removed: whose] [added: committed to making digital technology and artificial intelligence (“AI”) available broadly and doing so responsibly, with a] mission [removed: is] to empower every person and every organization on the planet to achieve more.

| | | Item 1C. | | [Cybersecurity](#item_1c_cybersecurity) | | 34 | |

| | | | | | | | |

| | | | | [Signatures](#signatures) | | 111 | |

We create platforms and tools, powered by AI, that deliver innovative solutions that meet the evolving needs of our customers.

We have entered a new age of AI that will fundamentally transform productivity for every individual, organization, and industry on earth, while helping us address some of our most pressing challenges.

Microsoft's AI offerings, including Copilot and our Copilot stack, are already orchestrating a new era of AI transformation, driving better business outcomes across every role and industry.

As a company, we believe we can be the democratizing force for this new generation of technology and the opportunity it will help unlock for every country, community, and individual.

We believe AI should be as empowering across communities as it is powerful, and we’re committed to ensuring it is responsibly designed and built with safety and security from the outset.

Our growth depends on securely delivering continuous innovation and advancing our leading productivity and collaboration tools and services, including Microsoft 365, LinkedIn, and Dynamics 365.

Microsoft 365 is an AI first platform that brings together Office, Windows, Copilot, and Enterprise Mobility + Security to help organizations empower their employees.

Copilot for Microsoft 365 combines AI with business data in the Microsoft Graph and Microsoft 365 applications.

Microsoft Teams is a comprehensive platform for communication and collaboration, with meetings, calling, chat, file collaboration, and the ability to bring all of the applications teams use into a single place.

Microsoft Viva is an employee experience platform that brings together communications, knowledge, learning, resources, and insights.

Together, the Microsoft Cloud, Dynamics 365, Microsoft Teams, and our AI offerings bring a new era of collaborative applications for every role and business function to get insights and business impact faster.

Dynamics 365 is a portfolio of intelligent business applications that delivers operational efficiency and breakthrough customer experiences.

Our role-based extensions of Microsoft Copilot – Copilot for Sales, Copilot for Service, and Copilot for Finance – bring together the power of Copilot for Microsoft 365 with role-specific insights and workflow assistance to streamline business processes.

Copilot Studio allows customers to customize Copilot for Microsoft 365 or build their own Copilot.

Microsoft Power Platform helps domain experts drive productivity gains with low-code/no-code tools, robotic process automation, virtual agents, and business intelligence.

Copilot Pro is a consumer subscription service that offers faster and more powerful AI assistance in Microsoft 365 apps and on the web.

LinkedIn combines our unique data with this new generation of AI to transform the way professionals learn, sell, market, and get hired.

Build the Intelligent Cloud and Intelligent Edge Platform

Digital transformation and adoption of AI continues to revolutionize more business workstreams for organizations in every sector across the globe.

For enterprises, digital technology empowers employees, optimizes operations, engages customers, and in some cases, changes the very core of products and services.

We continue to invest in high performance and sustainable computing to meet the growing demand for fast access to Microsoft services provided by our network of cloud computing and AI infrastructure and datacenters.

Our cloud business benefits from three economies of scale: datacenters that deploy computational resources at significantly lower cost per unit than smaller ones; datacenters that coordinate and aggregate diverse customer, geographic, and application demand patterns, improving the utilization of computing, storage, and network resources; and multi-tenancy locations that lower application maintenance labor costs.

The Microsoft Cloud provides the best integration across the technology stack while offering openness, improving time to value, reducing costs, and increasing agility.

As the foundation of the Microsoft Cloud, Azure uniquely offers hybrid consistency, developer productivity, data and AI capabilities, and trusted security and compliance.

We offer supercomputing power for AI at scale to run large workloads, complemented by our rapidly expanding portfolio of AI cloud services and hardware, which includes custom-built silicon and strong partnerships with chip manufacturers.

We have introduced purpose-built cloud infrastructure for AI workloads including a custom AI accelerator, Azure Maia, and a custom in-house central processing unit, Azure Cobalt.

Item 1

Our AI platform, Azure AI, is helping organizations transform, bringing intelligence and insights to the hands of their employees and customers to solve their most pressing challenges.

We offer a wide selection of industry-leading frontier and open models, including from partners, as well as state-of-the-art tooling, and AI-optimized infrastructure, delivering the Copilot stack for Microsoft, enterprises, and developers.

Organizations large and small are deploying Azure AI solutions to achieve more at scale, more easily, with the proper enterprise-level responsible AI and safety and security protections.

Azure AI Studio provides a full lifecycle toolchain customers can use to ground these models on their own data, create prompt workflows, and help ensure they are deployed and used safely.

GitHub Copilot is at the forefront of AI-powered software development, giving developers a tool to write code easier and faster.

From GitHub to Visual Studio, we provide a developer tool chain for everyone, no matter the technical experience, across all platforms.

We have a long-term partnership with OpenAI, a leading AI research and deployment company.

We deploy OpenAI’s models across our consumer and enterprise products.

As OpenAI’s exclusive cloud provider, Azure powers all of OpenAI's workloads.

We have also increased our investments in the development and deployment of specialized supercomputing systems to accelerate OpenAI’s research.

| | | | | [Signatures](#signatures) | | 109 | |

We are creating the platforms and tools, powered by artificial intelligence (“AI”), that deliver better, faster, and more effective solutions to support small and large business competitiveness, improve educational and health outcomes, grow public-sector efficiency, and empower human ingenuity.

In a world of increasing economic complexity, AI has the power to revolutionize many types of work.

Microsoft is now innovating and expanding our portfolio with AI capabilities to help people and organizations overcome today’s challenges and emerge stronger.

Customers are looking to unlock value from their digital spend and innovate for this next generation of AI, while simplifying security and management.

Those leveraging the Microsoft Cloud are best positioned to take advantage of technological advancements and drive innovation.

Our investment in AI spans the entire company, from Microsoft Teams and Outlook, to Bing and Xbox, and we are infusing generative AI capability into our consumer and commercial offerings to deliver copilot capability for all services across the Microsoft Cloud.

We’re committed to making the promise of AI real – and doing it responsibly.

Our work is guided by a core set of principles: fairness, reliability and safety, privacy and security, inclusiveness, transparency, and accountability.

We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of our fiscal year [removed: 2023] [added: 2024] that remain unresolved.

ITEM 1C.

CYBERSECURITY

RISK MANAGEMENT AND STRATEGY

Microsoft plays a central role in the world’s digital ecosystem.

We have made it the top corporate priority to protect the computing environment used by our customers and employees and to support the resiliency of our cloud infrastructure and services, products, devices, and our internal corporate resources from determined adversaries.

In response to the evolving cybersecurity threat landscape, we launched the Secure Future Initiative (“SFI”) in November 2023 and expanded the scope of SFI in May 2024.

The SFI focuses our business strategy and efforts on continual improvement in cybersecurity protection, and is aligned around three security principles:

Secure by Design: Security comes first when designing any product or service.

Secure by Default: Security protections are enabled and enforced by default, require no extra effort, and are not optional.

Secure Operations: Security controls and monitoring will continuously be improved to meet current and future threats.

We operate a cybersecurity program and governance framework designed to protect our computing environments against cybersecurity threats, and we have controls, policies, and procedures to identify, manage, and mitigate cybersecurity threats.

Annually, we assess our cybersecurity program’s alignment with the National Institute of Standards & Technology’s Cyber Security Framework (“NIST”) and other applicable industry standards.

We also undertake integrated planning and preparedness activities to support business continuity and operational resiliency.

We assess our program's effectiveness through various exercises, including tabletop simulations and production environment tests, penetration and vulnerability tests, red team exercises, and other related activities.

We conduct mandatory cybersecurity training, provide employees with tools to report suspected incidents and assess their own security posture, and conduct real-time simulated employee education exercises, such as phishing email campaigns designed to emulate real-world attacks.

We also engage in robust cybersecurity assessments and remediation efforts for acquired companies.

Our computing environments, products, and services are reviewed by our internal audit teams as well as independent third-party assessors.

We are committed to managing the most significant risks to our strategies and ambitions, including cybersecurity risks.

The Enterprise Risk Management (“ERM”) organization supports management in this commitment by facilitating the semiannual risk assessment, which documents the priority and status of these risks and aligns them with our strategic mitigation efforts.

ERM is structured using a framework based on the Committee of Sponsoring Organization (“COSO”) guidance on Enterprise Risk Management Integrating Strategy with Performance and it also aligns with the International Organization for Standardization 31000:2018 Risk Management Standard.

We continuously monitor our computing environments, products, and services for vulnerabilities and signs of compromise, and we utilize our own security products to combat cybersecurity threats.

We integrate security into our computing environments, products, and services through our Security Development Lifecycle (“SDL”).

Our SDL introduces security and privacy considerations throughout all phases of our development process and through the adoption of zero-trust end-to-end architecture.

We utilize machine learning and AI-powered security tools to gain insights from over 78 trillion signals per day and over 135 million managed devices.

We track over 300 unique threat actors, including 160 nation-state actors and 50 ransomware groups.

To support our efforts, we operate a Cyber Defense Operations Center connected to over 10,000 security and threat intelligence experts, including engineers, researchers, data scientists, cybersecurity experts, threat hunters, geopolitical analysts, investigators, and frontline responders across the globe.

PART I

When appropriate, we utilize external service providers to assess, test, or otherwise assist our program.

We also leverage third parties by working with external researchers, operating bug bounty programs, and managing coordinated vulnerability disclosure programs with security organizations.

We maintain a systematic approach to assessing and controlling the cybersecurity risks presented by third-party service providers.

We require third-party service providers to manage their cybersecurity risks in defined ways, undergo cybersecurity reviews, notify us of cyber events, and satisfy additional contractual requirements.

We seek to improve the entire cybersecurity ecosystem through multistakeholder diplomacy to set and uphold expectations for state behavior, advancement of government policy that strengthens cybersecurity and resiliency, disruption and deterrence of cybercrime, protection of national security interests, and disruption of digital threats to democracies.

We also establish processes and innovate solutions for us and our customers to address the growing number and complexity of cybersecurity regulations.

When we experience a cybersecurity incident, we utilize our well-established incident response plans that operate both across the company and at the product and services level.

Incidents are first triaged for severity, and then more deeply assessed to establish a plan of record and activate internal and external notification, disclosure, and communication plans, as applicable.

Engineering and development resources are mobilized to resolve or remediate the incident.

After the incident is resolved, a comprehensive post-incident review process is conducted.

We describe the risks from cybersecurity threats, including previous cybersecurity incidents, in section “Risk Factors” (Part I, Item 1A of this Form 10-K).

As of the date of this Form 10-K, we do not believe any risks from cybersecurity threats have materially affected or are reasonably likely to materially affect us, including our results of operations or financial condition.

However, the cybersecurity threat environment is increasingly challenging, and we, along with the entire digital ecosystem, are under constant and increasing threat.

As discussed above, our business strategy is tied to the SFI and we are committed to continuously monitoring cybersecurity threats, enhancing the security of our products, investing in our cybersecurity infrastructure, and collaborating with peers, customers, service providers, regulators, and governments to advance our and the entire digital ecosystem’s cybersecurity defenses and resiliency.

GOVERNANCE

Our Board of Directors oversees cybersecurity risk.

Cybersecurity reviews by the Board are scheduled to occur at least quarterly, or more frequently as determined to be necessary or advisable.

Presentations to the Board of Directors are made by senior management, including our Chief Information Security Officer (“CISO”), our EVP of Microsoft Security, and the head of our Customer Security and Trust organization.

The presentations address topics such as cybersecurity threats, incidents, top risks and related remediation efforts, results from internal and third-party assessments, progress towards risk-mitigation goals, the functioning of our incident response program, regulatory developments, and digital diplomacy efforts.

In addition, we have an escalation process in place to inform senior management and the Board of significant issues.

Cybersecurity issues are also considered during separate Board meeting discussions regarding important matters like ERM, audit issues, operational budgeting, business continuity planning, mergers and acquisitions, brand management, and other relevant matters.

Our CISO leads the strategy, engineering, and operations of cybersecurity across the company, and reports to the EVP of Microsoft Security.

Our CISO has extensive experience assessing and managing cybersecurity programs and cybersecurity risk.

Before joining Microsoft, our CISO served in a prior Chief Technology Officer role as well as in senior leadership, engineering, and operational roles within multiple organizations.

In addition to the Board’s oversight of cybersecurity risk, to support the CISO, we have established a Cybersecurity Governance Council (“CGC”) charged with overseeing initiatives that safeguard Microsoft’s infrastructure.

The CGC is comprised of an executive-level team of Deputy CISOs with cybersecurity backgrounds and expertise relevant to their roles.

The CGC responsibilities include approving our enterprise security risk assessment process and results, determining the appropriate cybersecurity risk level and mitigations, reviewing the NIST CSF alignment, and supporting compliance with cybersecurity regulations.

Our cybersecurity efforts are supported directly by Microsoft’s security and threat intelligence experts and our employees across the company, all of whom receive cybersecurity awareness training and education and are expected to support our efforts.

PART I

Item 2, 3, 4

We have approximately [removed: 16] [added: 15] million square feet of space located in King County, Washington that is used for engineering, sales, marketing, and operations, among other general and administrative purposes.

These facilities include approximately [removed: 11] [added: 12] million square feet of owned space situated on approximately 530 acres of land we own at our corporate headquarters, and approximately [removed: 5] [added: 3] million square feet of space we lease.

The table below shows a summary of the square footage of our properties owned and leased domestically and internationally as of June 30, [removed: 2023:][added: 2024:]

| U.S. | | | [removed: 27] [added: 30] | | | | 20 | | | | [removed: 47] [added: 50] | |

| International | | | [removed: 9] [added: 10] | | | | [removed: 22] [added: 25] | | | | [removed: 31] [added: 35] | |

| Total | | | [removed: 36] [added: 40] | | | | [removed: 42] [added: 45] | | | | [removed: 78] [added: 85] | |

In fiscal year 2023, we made decisions to consolidate our office leases to create higher density across our workspaces, and we may make similar decisions in future periods as we continue to evaluate our real estate needs.

On July [removed: 24, 2023,] [added: 25, 2024,] there were [removed: 83,883] [added: 81,346] registered holders of record of our common stock.

Following are our monthly share repurchases for the fourth quarter of fiscal year [removed: 2023:][added: 2024:]

Our Board of Directors declared the following dividends during the fourth quarter of fiscal year [removed: 2023:][added: 2024:]

We returned [removed: $9.7] [added: $8.4] billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year [removed: 2023.][added: 2024.]

| April 1, 2024 – April 30, 2024 | | | 2,444,905 | | | | $ | 413.75 | | | | 2,444,905 | | | $ | 12,138 | |

| May 1, 2024 – May 31, 2024 | | | 2,233,450 | | | | | 416.85 | | | | 2,233,450 | | | | 11,207 | |

| June 1, 2024 – June 30, 2024 | | | 1,963,873 | | | | | 436.58 | | | | 1,963,873 | | | | 10,349 | |

| | | | 6,642,228 | | | | | | | | | 6,642,228 | | | | | |

| June 12, 2024 | | | August 15, 2024 | | | | September 12, 2024 | | | $ | 0.75 | | | $ | 5,575 | |

| April 1, 2023 – April 30, 2023 | | | 5,007,656 | | | | $ | 287.97 | | | | 5,007,656 | | | $ | 25,467 | |

| May 1, 2023 – May 31, 2023 | | | 5,355,638 | | | | | 314.26 | | | | 5,355,638 | | | | 23,784 | |

| June 1, 2023 – June 30, 2023 | | | 4,413,960 | | | | | 334.15 | | | | 4,413,960 | | | | 22,309 | |

| | | | 14,777,254 | | | | | | | | | 14,777,254 | | | | | |

| June 13, 2023 | | | August 17, 2023 | | | | September 14, 2023 | | | $ | 0.68 | | | $ | 5,054 | |

This section generally discusses the results of our operations for the year ended June 30, [removed: 2023] [added: 2024] compared to the year ended June 30, [removed: 2022.][added: 2023.]

For a discussion of the year ended June 30, [removed: 2022] [added: 2023] compared to the year ended June 30, [removed: 2021,] [added: 2022,] please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended June 30, [removed: 2022.][added: 2023.]

Microsoft is a technology company [removed: whose] [added: committed to making digital technology and artificial intelligence (“AI”) available broadly and doing so responsibly, with a] mission [removed: is] to empower every person and every organization on the planet to achieve more.

Highlights from fiscal year [removed: 2023] [added: 2024] compared with fiscal year [removed: 2022] [added: 2023] included:

Microsoft Cloud revenue increased [removed: 22%] [added: 23%] to [removed: $111.6] [added: $137.4] billion.

Office Commercial products and cloud services revenue increased [removed: 10%] [added: 14%] driven by Office 365 Commercial growth of [removed: 13%.][added: 16%.]

Office Consumer products and cloud services revenue increased [removed: 2%] [added: 4%] and Microsoft 365 Consumer subscribers [removed: increased] [added: grew] to [removed: 67.0] [added: 82.5] million.

LinkedIn revenue increased [removed: 10%.][added: 9%.]

Dynamics products and cloud services revenue increased [removed: 16%] [added: 19%] driven by Dynamics 365 growth of 24%.

Server products and cloud services revenue increased [removed: 19%] [added: 22%] driven by Azure and other cloud services growth of [removed: 29%.][added: 30%.]

Devices revenue decreased [removed: 24%.][added: 15%.]

[removed: Windows] [added: Office] Commercial products and cloud services revenue increased [removed: 5%.][added: $5.8 billion or 14%.]

Search and news advertising revenue excluding traffic acquisition costs increased [removed: 11%.][added: 12%.]

We create platforms and tools, powered by AI, that deliver innovative solutions that meet the evolving needs of our customers.

Windows revenue increased 8% with Windows original equipment manufacturer licensing (“Windows OEM”) revenue growth of 7% and Windows Commercial products and cloud services revenue growth of 11%.

Xbox content and services revenue increased 50% driven by 44 points of net impact from the Activision Blizzard Inc. (“Activision Blizzard”) acquisition.

The net impact reflects the change of Activision Blizzard content from third-party to first-party.

On October 13, 2023, we completed our acquisition of Activision Blizzard for a total purchase price of $75.4 billion, consisting primarily of cash.

The financial results of Activision Blizzard have been included in our consolidated financial statements since the date of the acquisition.

Activision Blizzard is reported as part of our More Personal Computing segment.

Refer to Note 8 – Business Combinations of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.

Item 7

Economic Conditions, Challenges, and Risks

The markets for software, devices, and cloud-based services are dynamic and highly competitive.

Our competitors are developing new software and devices, while also deploying competing cloud-based services for consumers and businesses.

The devices and form factors customers prefer evolve rapidly, influencing how users access services in the cloud and, in some cases, the user’s choice of which suite of cloud-based services to use.

Aggregate demand for our software, services, and devices is also correlated to global macroeconomic and geopolitical factors, which remain dynamic.

We must continue to evolve and adapt over an extended time in pace with this changing environment.

The investments we are making in cloud and AI infrastructure and devices will continue to increase our operating costs and may decrease our operating margins.

We continue to identify and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services.

Our datacenters depend on the availability of permitted and buildable land, predictable energy, networking supplies, and servers, including graphics processing units (“GPUs”) and other components.

Our devices are primarily manufactured by third-party contract manufacturers.

For the majority of our products, we have the ability to use other manufacturers if a current vendor becomes unavailable or unable to meet our requirements.

However, some of our products contain certain components for which there are very few qualified suppliers.

Extended disruptions at these suppliers could impact our ability to manufacture devices on time to meet consumer demand.

Our success is highly dependent on our ability to attract and retain qualified employees.

We hire a mix of university and industry talent worldwide.

We compete for talented individuals globally by offering an exceptional working environment, broad customer reach, scale in resources, the ability to grow one’s career across many different products and businesses, and competitive compensation and benefits.

Our international operations provide a significant portion of our total revenue and expenses.

Many of these revenue and expenses are denominated in currencies other than the U.S. dollar.

As a result, changes in foreign exchange rates may significantly affect revenue and expenses.

Fluctuations in the U.S. dollar relative to certain foreign currencies did not have a material impact on reported revenue and expenses from our international operations in fiscal year 2024.

Refer to Risk Factors (Part I, Item 1A of this Form 10-K) for a discussion of these factors and other risks.

Seasonality

Our revenue fluctuates quarterly and is generally higher in the fourth quarter of our fiscal year.

Fourth quarter revenue is driven by a higher volume of multi-year contracts executed during the period.

Change in Accounting Estimate

In July 2022, we completed an assessment of the useful lives of our server and network equipment.

Due to investments in software that increased efficiencies in how we operate our server and network equipment, as well as advances in technology, we determined we should increase the estimated useful lives of both server and network equipment from four years to six years.

This change in accounting estimate was effective beginning fiscal year 2023.

PART II

Item 7

Reportable Segments

We strive to create local opportunity, growth, and impact in every country around the world.

We are creating the platforms and tools, powered by artificial intelligence (“AI”), that deliver better, faster, and more effective solutions to support small and large business competitiveness, improve educational and health outcomes, grow public-sector efficiency, and empower human ingenuity.

Windows original equipment manufacturer licensing (“Windows OEM”) revenue decreased 25%.

Xbox content and services revenue decreased 3%.

| (In millions) | | June 30, [removed: 2023] [added: 2024] | | | | June 30, [removed: 2022] [added: 2023] | | |

| Foreign exchange contracts purchased | | $ | 1,492 | | | $ | [removed: 635] [added: 1,492] | |

| Interest rate contracts purchased | | | [removed: 1,078] [added: 1,100] | | | | [removed: 1,139] [added: 1,078] | |

| Foreign exchange contracts purchased | | | [removed: 7,874] [added: 7,167] | | | | [removed: 10,322] [added: 7,874] | |

| Foreign exchange contracts sold | | | [removed: 25,159] [added: 31,793] | | | | [removed: 21,606] [added: 25,159] | |

| Equity contracts purchased | | | [removed: 3,867] [added: 4,016] | | | | [removed: 1,131] [added: 3,867] | |

| Equity contracts sold | | | [removed: 2,154] [added: 2,165] | | | | [removed: 0] [added: 2,154] | |

| Other contracts purchased | | | [removed: 1,224] [added: 2,113] | | | | [removed: 1,642] [added: 1,224] | |

| Other contracts sold | | | [removed: 581] [added: 811] | | | | [removed: 544] [added: 581] | |

| (In millions) | | [removed: Derivative] Assets | | | [removed: Derivative] Liabilities | | | | [removed: Derivative] Assets | | | | [removed: Derivative] Liabilities | | | |

| [removed: | |] June 30, [removed: 2023] | | [removed: | |] [added: 2024] | | | [removed: June 30, 2022] | [added: 2023] | | | | [added: 2022] | | |

| Foreign exchange contracts | | $ | [removed: 34] [added: 24] | | | $ | [removed: (67] [added: (76] | ) | | $ | [removed: 0] [added: 34] | | | $ | [removed: (77] [added: (67] | ) |

| Interest rate contracts | | | [removed: 16] [added: 19] | | | | 0 | | | | [removed: 3] [added: 16] | | | | 0 | |

| Foreign exchange contracts | | | [removed: 249] [added: 213] | | | | [removed: (332] [added: (230] | ) | | | [removed: 333] [added: 249] | | | | [removed: (362] [added: (332] | ) |

| Equity contracts | | | [removed: 165] [added: 63] | | | | [removed: (400] [added: (491] | ) | | | [removed: 5] [added: 165] | | | | [removed: (95] [added: (400] | ) |

| Other contracts | | | [removed: 5] [added: 12] | | | | [removed: (6] [added: (3] | ) | | | [removed: 15] [added: 5] | | | | [removed: (17] [added: (6] | ) |

| Gross amounts of derivatives | | | [removed: 469] [added: 331] | | | | [removed: (805] [added: (800] | ) | | | [removed: 356] [added: 469] | | | | [removed: (551] [added: (805] | ) |

| Gross amounts of derivatives offset in the balance [removed: sheet] [added: sheets] | | | [removed: (202] [added: (151] | ) | | | [removed: 206] [added: 152] | | | | [removed: (130] [added: (202] | ) | | | [removed: 133] [added: 206] | |

| Cash collateral received | | | 0 | | | | [removed: (125] [added: (104] | ) | | | 0 | | | | [removed: (75] [added: (125] | ) |

| Net amounts of derivatives | | $ | [removed: 267] [added: 180] | | | $ | [removed: (724] [added: (752] | ) | | $ | [removed: 226] [added: 267] | | | $ | [removed: (493] [added: (724] | ) |

| Short-term investments | | $ | [removed: 6] [added: 12] | | | $ | 0 | | | $ | [removed: 8] [added: 6] | | | $ | 0 | |

| Other current assets | | | [removed: 245] [added: 149] | | | | 0 | | | | [removed: 218] [added: 245] | | | | 0 | |

| Other long-term assets | | | [removed: 16] [added: 19] | | | | 0 | | | | [removed: 0] [added: 16] | | | | 0 | |

| Other current liabilities | | | 0 | | | | [removed: (341] [added: (401] | ) | | | 0 | | | | [removed: (298] [added: (341] | ) |

| Other long-term liabilities | | | 0 | | | | [removed: (383] [added: (351] | ) | | | 0 | | | | [removed: (195] [added: (383] | ) |

| Total | | $ | [removed: 267] [added: 180] | | | $ | [removed: (724] [added: (752] | ) | | $ | [removed: 226] [added: 267] | | | $ | [removed: (493] [added: (724] | ) |

Gross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected to offset were [removed: $442] [added: $304] million and [removed: $804] [added: $800] million, respectively, as of June 30, [removed: 2023,] [added: 2024,] and [removed: $343] [added: $442] million and [removed: $550] [added: $804] million, respectively, as of June 30, [removed: 2022.][added: 2023.]

| Derivative assets | | [removed: $] | [removed: 0] [added: 0] | | | [removed: $] | [removed: 462] [added: 462] | | | [removed: $] | [removed: 7] [added: 7] | | | [removed: $] | [removed: 469] [added: 469] | |

| Derivative liabilities | | | [removed: 0] [added: 0] | | | | [removed: (805] [added: (805] | [removed: )] [added: )] | | | [removed: 0] [added: 0] | | | | [removed: (805] [added: (805] | [removed: )] [added: )] |

| Derivative liabilities | | | [removed: 0] [added: (1] | [added: )] | | | [removed: (551] [added: (799] | [removed: )] [added: )] | | | [removed: 0] [added: 0] | | | | [removed: (551] [added: (800] | [removed: )] [added: )] |

| Year Ended June 30, | | [removed: 2023] [added: 2024] | | | | [removed: 2022] [added: 2023] | | | | [removed: 2021] [added: 2022] | | |

| Derivatives | | $ | 0 | | | $ | [removed: 49] [added: 0] | | | $ | [removed: 193] [added: 49] | |

| Hedged items | | | 0 | | | | [removed: (50] [added: 0] | [removed: )] | | | [removed: (188] [added: (50] | ) |

| Excluded from effectiveness assessment | | | 0 | | | | [removed: 4] [added: 0] | | | | [removed: 30] [added: 4] | |

| Derivatives | | | [removed: (65] [added: (23] | ) | | | [removed: (92] [added: (65] | ) | | | [removed: (37] [added: (92] | ) |

| Hedged items | | | [removed: 38] [added: (25] | [added: )] | | | [removed: 108] [added: 38] | | | | [removed: 53] [added: 108] | |

| Amount reclassified from accumulated other comprehensive [removed: income] [added: loss] | | | [removed: 61] [added: (48] | [added: )] | | | [removed: (79] [added: 61] | [removed: )] | | | [removed: 17] [added: (79] | [added: )] |

| Foreign exchange contracts | | | [removed: (73] [added: 367] | [removed: )] | | | [removed: 383] [added: (73] | [added: )] | | | [removed: 27] [added: 383] | |

| Equity contracts | | | [removed: (420] [added: (177] | ) | | | [removed: 13] [added: (420] | [added: )] | | | [removed: (6] [added: 13] | [removed: )] |

| Other contracts | | | [removed: (41] [added: (15] | ) | | | [removed: (85] [added: (41] | ) | | | [removed: 15] [added: (85] | [added: )] |

| | | Derivative | | | Derivative | | | | Derivative | | | | Derivative | | | |

| June 30, 2024 | | | | | | | | | | | | | | | | |

| Derivative assets | | $ | 0 | | | $ | 327 | | | $ | 4 | | | $ | 331 | |

| June 30, | | 2024 | | | | 2023 | | |

| June 30, | | 2024 | | | | 2023 | | |

The purchase price allocation as of the date of acquisition was based on a preliminary valuation and is subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed becomes available.

The primary areas that remain preliminary relate to the fair values of goodwill and income taxes.

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | |

| | | | | | | | |

| Goodwill | | | | | | 50,969 | |

| Long-term debt | | | | | | (2,799 | ) |

| Long-term income taxes | | | | | | (1,914 | ) |

| Deferred income taxes | | | | | | (4,677 | ) |

| | | | | | | | |

| | | | | | | | |

| Total purchase price | | | | | $ | 75,408 | |

| | | | | | | | |

| Fair value of intangible assets acquired | | $ | 21,969 | | | | 15 years | |

Following is the net impact of the Activision Blizzard acquisition on our consolidated income statements since the date of acquisition:

| Year Ended June 30, | | | 2024 | |

| Revenue | | $ | 5,729 | |

| Operating loss | | | (1,362 | ) |

The change of Activision Blizzard content from third-party to first-party is reflected in the net impact.

Following are the supplemental consolidated financial results of Microsoft Corporation on an unaudited pro forma basis, as if the acquisition had been consummated on July 1, 2022:

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

| Revenue | | $ | 247,442 | | | $ | 219,790 | |

| Net income | | | 88,308 | | | | 71,383 | |

| Diluted earnings per share | | | 11.82 | | | | 9.55 | |

These pro forma results were based on estimates and assumptions, which we believe are reasonable.

They are not the results that would have been realized had we been a combined company during the periods presented and are not necessarily indicative of our consolidated results of operations in future periods.

The pro forma results include adjustments related to purchase accounting, primarily amortization of intangible assets.

Acquisition costs and other nonrecurring charges were immaterial and are included in the earliest period presented.

*Includes goodwill of $51.0* *billion related to Activision Blizzard.

See Note 8 – Business Combinations for further information.*

| June 30, | | | | | | | | | | 2024 | | | | | | | | | | | | 2023 | | |

*Includes intangible assets of $22.0* *billion related to Activision Blizzard.

See Note 8 – Business Combinations for further information.*

| Year Ended June 30, | | 2024 | | | | | | | | 2023 | | | | | | |

| June 30, 2022 | | | | | | | | | | | | | | | | |

| Derivative assets | | | 1 | | | | 349 | | | | 6 | | | | 356 | |

Depreciation expense declined in fiscal year 2023 due to the change in estimated useful lives of our server and network equipment.

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

ZeniMax Media Inc.

The purchase price included $766 million of cash and cash equivalents acquired.

Bethesda is one of the largest, privately held game developers and publishers in the world, and brings a broad portfolio of games, technology, and talent to Xbox.

The allocation of the purchase price to goodwill was completed as of December 31, 2021.

| Goodwill | | | | | | | 5,510 | |

| Total | | | | | | $ | 8,121 | |

On January 18, 2022, we entered into a definitive agreement to acquire Activision Blizzard, Inc. (“Activision Blizzard”) for $95.00 per share in an all-cash transaction valued at $68.7 billion, inclusive of Activision Blizzard’s net cash.

The acquisition has been approved by Activision Blizzard’s shareholders.

We continue to work toward closing the transaction subject to obtaining required regulatory approvals and satisfaction of other customary closing conditions.

Microsoft and Activision Blizzard have jointly agreed to extend the merger agreement through October 18, 2023 to allow for additional time to resolve remaining regulatory concerns.

| Total | | $ | 541 | | | | 6 years | | | $ | 5,681 | | | | 7 years | |

| 2024 | | $ | 2,363 | |

| 2025 | | | 1,881 | |

| 2026 | | | 1,381 | |

| 2027 | | | 929 | |

| 2028 | | | 652 | |

| Thereafter | | | 2,160 | |

| Total | | $ | 9,366 | |

| 2017 issuance of $17.0 billion | | | 2024 | – | 2057 | | | 2.88% | – | 4.50% | | | 3.04% | – | 4.53% | | | | 8,945 | | | | 8,945 | |

| 2024 | | $ | 5,250 | |

| 2027 | | | 8,000 | |

| Thereafter | | | 34,366 | |

| Total | | $ | 52,866 | |

We have historically paid India withholding taxes on software sales through distributor withholding and tax audit assessments in India.

In March 2021, the India Supreme Court ruled favorably in the case of Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax for companies in 86 separate appeals, some dating back to 2012, holding that software sales are not subject to India withholding taxes.

Although we were not a party to the appeals, our software sales in India were determined to be not subject to withholding taxes.

Therefore, we recorded a net income tax benefit of $620 million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision impacting fiscal year 1996 through fiscal year 2016.

The decrease from the federal statutory rate in fiscal year 2021 is primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland and Puerto Rico, tax benefits relating to stock-based compensation, and tax benefits from the India Supreme Court decision on withholding taxes.

The decrease in our effective tax rate for fiscal year 2022 compared to fiscal year 2021 was primarily due to a $3.3 billion net income tax benefit in the first quarter of fiscal year 2022 related to the transfer of intangible properties, offset in part by changes in the mix of our income before income taxes between the U.S. and foreign countries, as well as tax benefits in the prior year from the India Supreme Court decision on withholding taxes, an agreement between the U.S. and India tax authorities related to transfer pricing, and final Tax Cuts and Jobs Act (“TCJA”) regulations.

| Book/tax basis differences in investments and debt | | $ | 0 | | | $ | (174 | ) |

| Other | | | (89 | ) | | | (103 | ) |

*Provisions enacted in the TCJA related to the capitalization for tax purposes of research and development expenditures became effective on July 1, 2022.

These provisions require us to capitalize research and development expenditures and amortize them on our U.S. tax return over five or fifteen years, depending on where research is conducted.*

We settled a portion of the Internal Revenue Service (“IRS”) audit for tax years 2004 to 2006 in fiscal year 2011.

In February 2012, the IRS withdrew its 2011 Revenue Agents Report related to unresolved issues for tax years 2004 to 2006 and reopened the audit phase of the examination.

Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of June 30, [removed: 2023.][added: 2024.]

There were no changes in our internal control over financial reporting during the quarter ended June 30, [removed: 2023] [added: 2024] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Deloitte & Touche LLP has audited our internal control over financial reporting as of June 30, [removed: 2023;] [added: 2024;] their report is included in Item 9A.

Our assessment of, and conclusion on, the effectiveness of internal control over financial reporting did not include the internal controls of Activision Blizzard, Inc., acquired on October 13, 2023, which is included in our consolidated financial statements since the date of acquisition and represented less than 1% of our total assets as of June 30, 2024 after excluding goodwill and intangible assets acquired, and 2% of our total revenues for the year ended June 30, 2024.

We have audited the internal control over financial reporting of Microsoft Corporation and subsidiaries (the "Company") as of June 30, [removed: 2023,] [added: 2024,] based on criteria established in *Internal Control — Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, [removed: 2023,] [added: 2024,] based on criteria established in *Internal Control — Integrated Framework (2013)* issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, [removed: 2023,] [added: 2024,] of the Company and our report dated July [removed: 27, 2023,] [added: 30, 2024,] expressed an unqualified opinion on those financial statements.

Item [removed: 9B, 9C, 10, 11, 12, 13, 14][added: 9A]

As described in the Report of Management on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Activision Blizzard, Inc., which was acquired on October 13, 2023, and whose financial statements constitute less than 1 percent of total assets as of June 30, 2024 after excluding goodwill and intangible assets acquired, and 2 percent of total revenues for the year ended June 30, 2024.

Accordingly, our audit did not include the internal control over financial reporting at Activision Blizzard, Inc.

PART II

July 30, 2024

Item 9B, 9C, 10

July 27, 2023

[removed: During the three months ended June 30, 2023, none] [added: None] of our [removed: directors or] officers [removed: (as] [added: or directors, as] defined in Rule 16a-1(f) of the Securities Exchange Act of [removed: 1934) informed us of the adoption] [added: 1934, adopted, modified,] or [removed: termination of] [added: terminated] a “Rule 10b5-1 trading arrangement” or [added: a] “non-Rule 10b5-1 trading arrangement,” as defined in Item 408 of Regulation [removed: S-K.][added: S-K, during the three months ended June 30, 2024.]

Insider Trading Arrangements

Information about our directors may be found under the caption “Our Director Nominees” in our Proxy Statement for the Annual Meeting of Shareholders to be held December [removed: 7, 2023] [added: 10, 2024] (the “Proxy Statement”).

We have adopted insider trading policies and procedures applicable to our directors, officers, and employees, and have implemented processes for the company, that we believe are reasonably designed to promote compliance with insider trading laws, rules, and regulations, and the Nasdaq Stock Market LLC listing standards.

Our General Insider Trading Policy prohibits our employees and related persons and entities from trading in securities of Microsoft and other companies while in possession of material, nonpublic information.

Our General Insider Trading Policy also prohibits our employees from disclosing material, nonpublic information Microsoft, or another publicly traded company, to others who may trade on the basis of that information.

A copy of our General Insider Trading Policy is filed as Exhibit 19.1 to this Form 10-K.

Our Restricted Trading Window Policy requires that certain officers of the company (corporate vice presidents and above) and other designated employees only transact in Microsoft securities during an open window period, subject to limited exceptions.

In addition, certain officers of the company are required to obtain approval in advance of transactions in Microsoft securities.

A copy of our Restricted Trading Window Policy is filed as Exhibit 19.2 to this Form 10-K.

Our executive officers and directors must also comply with additional trading restrictions.

A copy of our Insider Trading Compliance and Preclearance Policies for Section 16 Officers and Directors of Microsoft is filed as Exhibit 19.3 to this Form 10-K.

PART III

Item 11, 12, 13, 14

The information in the Proxy Statement set forth under the captions “Stock Ownership Information,” “Principal [removed: Shareholders”] [added: Shareholders,”] and “Equity Compensation Plan Information” is incorporated herein by reference.

| [Income Statements](#income_statements) | | [removed: 58] [added: 56] | |

| [Comprehensive Income Statements](#comprehensive_income_statements) | | [removed: 59] [added: 57] | |

| [Balance Sheets](#balance_sheets) | | [removed: 60] [added: 58] | |

| [Cash Flows Statements](#cash_flows_statements) | | [removed: 61] [added: 59] | |

| [Stockholders’ Equity Statements](#stockholders_equity_statements) | | [removed: 62] [added: 60] | |

| [Notes to Financial Statements](#notes_to_financial_statements) | | [removed: 63] [added: 61] | |

| [Report of Independent Registered Public Accounting Firm](#report_independent) | | [removed: 96] [added: 94] | |

| 3.2 | | [Bylaws of Microsoft [removed: Corporation](https://www.sec.gov/Archives/edgar/data/789019/000119312517203579/d347274dex32.htm)] [added: Corporation](https://www.sec.gov/Archives/edgar/data/789019/000119312523181341/d288670dex32.htm)] | | | | | 8-K | | | | | | | | 3.2 | | | | 7/3/2023 | |

| 4.17 | | [Fourteenth Supplemental Indenture for 2.921% Notes due 2052 and 3.041% Notes due 2062, dated as of March 17, 2021, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee, to the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as [removed: trustee](https://www.sec.gov/Archives/edgar/data/0000789019/000119312521084239/d130687dex41.htm)] [added: trustee](https://www.sec.gov/Archives/edgar/data/789019/000119312521084239/d130687dex41.htm)] | | | | | 8-K | | | | | | | | 4.1 | | | | 3/17/2021 | |

| [removed: 4.18] [added: 4.26] | | [Description of [removed: Securities](https://www.sec.gov/Archives/edgar/data/789019/000156459019027952/msft-ex416_464.htm)] [added: Securities](https://www.sec.gov/Archives/edgar/data/789019/000095017024087843/msft-ex4_26.htm)] | | [added: X] | | | [removed: 10-K] | | | | [removed: 6/30/2019] | | | | [removed: 4.16] | | | | [removed: 8/1/2019] | |

| 4.18 | | [Fifteenth Supplemental Indenture, dated as of November 6, 2023, by and between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee](https://www.sec.gov/Archives/edgar/data/789019/000119312523271376/d566386dex42.htm) | | | | | 8-K | | | | | | | | 4.2 | | | | 11/6/2023 | |

| 4.19 | | [Indenture, dated as of September 19, 2016, by and between Activision Blizzard, Inc. and Wells Fargo Bank, National Association, as Trustee, with respect to Activision Blizzard, Inc.’s 3.400% Senior Notes due 2026](https://www.sec.gov/Archives/edgar/data/789019/000119312523271376/d566386dex49.htm) | | | | | 8-K | | | | | | | | 4.9 | | | | 11/6/2023 | |

Item 15

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | Incorporated by Reference | | | | | | | | | | | | | | | |

| Exhibit Number | | Exhibit Description | | Filed Herewith | | Form | | | | Period Ending | | | | Exhibit | | | | Filing Date | | |

| 4.20 | | [Base Indenture, dated as of May 26, 2017, by and between Activision Blizzard, Inc. and Wells Fargo Bank, National Association, as Trustee, with respect to Activision Blizzard, Inc.’s 3.400% Senior Notes due 2027, 1.350% Senior Notes due 2030, 4.500% Senior Notes due 2047 and 2.500% Senior Notes due 2050](https://www.sec.gov/Archives/edgar/data/789019/000119312523271376/d566386dex410.htm) | | | | | 8-K | | | | | | | | 4.10 | | | | 11/6/2023 | |

| | | | | | | | | | | | | | | | | | | | | |

| 4.21 | | [First Supplemental Indenture, dated as of May 26, 2017, by and between Activision Blizzard, Inc. and Wells Fargo Bank, National Association, as Trustee, with respect to Activision Blizzard, Inc.’s 3.400% Senior Notes due 2027 and 4.500% Senior Notes due 2047](https://www.sec.gov/Archives/edgar/data/789019/000119312523271376/d566386dex411.htm) | | | | | 8-K | | | | | | | | 4.11 | | | | 11/6/2023 | |

| | | | | | | | | | | | | | | | | | | | | |

| 4.22 | | [Second Supplemental Indenture, dated as of August 10, 2020, by and between Activision Blizzard, Inc. and Wells Fargo Bank, National Association, as Trustee, with respect to Activision Blizzard, Inc.’s 1.350% Senior Notes due 2030 and 2.500% Senior Notes due 2050](https://www.sec.gov/Archives/edgar/data/789019/000119312523271376/d566386dex412.htm) | | | | | 8-K | | | | | | | | 4.12 | | | | 11/6/2023 | |

| | | | | | | | | | | | | | | | | | | | | |

| 4.23 | | [First Supplemental Indenture, dated as of October 27, 2023, by and between Activision Blizzard, Inc. and Computershare Trust Company, N.A., with respect to Activision Blizzard, Inc.’s 3.400% Senior Notes due 2026](https://www.sec.gov/Archives/edgar/data/789019/000119312523271376/d566386dex413.htm) | | | | | 8-K | | | | | | | | 4.13 | | | | 11/6/2023 | |

| | | | | | | | | | | | | | | | | | | | | |

| 4.24 | | [Third Supplemental Indenture, dated as of October 27, 2023, by and between Activision Blizzard, Inc. and Computershare Trust Company, N.A., with respect to Activision Blizzard, Inc.’s 3.400% Senior Notes due 2027 and 4.500% Senior Notes due 2047](https://www.sec.gov/Archives/edgar/data/789019/000119312523271376/d566386dex414.htm) | | | | | 8-K | | | | | | | | 4.14 | | | | 11/6/2023 | |

| | | | | | | | | | | | | | | | | | | | | |