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`Exhibit B
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`Case 1:23-cv-01373-MN Document 16-2 Filed 03/04/24 Page 2 of 122 PageID #: 518
`Table of Contents
`
`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`
`FORM 10-K
`
`
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`
`
`☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
`1934
`For the Fiscal Year Ended June 30, 2016
`
`OR
` ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
`1934
`For the Transition Period From to
`
`
`
`
`
`Commission File Number 001-37845
`
`MICROSOFT CORPORATION
`
`
`
`91-1144442
`WASHINGTON
`
`(I.R.S. ID)
`(STATE OF INCORPORATION)
`
`ONE MICROSOFT WAY, REDMOND, WASHINGTON 98052-6399
`(425) 882-8080
`www.microsoft.com/investor
`Securities registered pursuant to Section 12(b) of the Act:
`COMMON STOCK, $0.00000625 par value per share NASDAQ
`Securities registered pursuant to Section 12(g) of the Act:
`NONE
`Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
`Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
`Act. Yes ☐ No ☒
`Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
`of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
`subject to such filing requirements for the past 90 days. Yes ☒ No ☐
`Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data
`File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
`for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
`Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
`herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
`in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
`company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
` ☒
` ☐
`Large accelerated filer
` Accelerated filer
` ☐ (Do not check if a smaller reporting company)
` ☐
` Smaller reporting company
`Non-accelerated filer
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
`As of December 31, 2015, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $424.5
`billion based on the closing sale price as reported on the NASDAQ National Market System. As of July 25, 2016, there were 7,792,515,573
`shares of common stock outstanding.
`
`
`
`DOCUMENTS INCORPORATED BY REFERENCE
`Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on
`November 30, 2016 are incorporated by reference into Part III.
`
`
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`
`
`

`

`Case 1:23-cv-01373-MN Document 16-2 Filed 03/04/24 Page 3 of 122 PageID #: 519
`Table of Contents
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`PART I
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`PART II
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`PART III
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` Item 1.
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` Item 1A.
` Item 1B.
` Item 2.
` Item 3.
` Item 4.
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` Item 5.
` Item 6.
` Item 7.
` Item 7A.
` Item 8.
` Item 9.
` Item 9A.
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` Item 9B.
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` Item 10.
` Item 11.
` Item 12.
` Item 13.
` Item 14.
`PART IV
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` Item 15.
`
`
`MICROSOFT CORPORATION
`FORM 10-K
`For The Fiscal Year Ended June 30, 2016
`INDEX
`
`
`
`
`
`
`
` Business
` Executive Officers of the Registrant
` Risk Factors
` Unresolved Staff Comments
` Properties
` Legal Proceedings
` Mine Safety Disclosures
`
`
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` Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
` Selected Financial Data
` Management’s Discussion and Analysis of Financial Condition and Results of Operations
` Quantitative and Qualitative Disclosures about Market Risk
` Financial Statements and Supplementary Data
` Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
` Controls and Procedures
` Report of Management on Internal Control over Financial Reporting
` Report of Independent Registered Public Accounting Firm
` Other Information
`
`
`
` Directors, Executive Officers and Corporate Governance
` Executive Compensation
` Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
` Certain Relationships and Related Transactions, and Director Independence
` Principal Accounting Fees and Services
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`
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` Exhibits, Financial Statement Schedules
` Signatures
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`2
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`Page
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`3
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` 15
` 17
` 26
` 26
` 27
` 27
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` 28
` 28
` 29
` 50
` 52
` 96
` 96
` 96
` 97
` 98
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` 98
` 98
` 98
` 98
` 98
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` 99
` 103
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`

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`Case 1:23-cv-01373-MN Document 16-2 Filed 03/04/24 Page 4 of 122 PageID #: 520
`Table of Contents
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`PART I
`Item 1
`Note About Forward-Looking Statements
`
`This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-
`looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and
`Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following
`sections: “Business,” “Management’s Discussion and Analysis,” and “Risk Factors.” These forward-looking statements generally are identified by
`the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will
`be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions
`that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause
`actual results and events to differ materially in “Risk Factors” (Part I, Item 1A of this Form 10-K), “Quantitative and Qualitative Disclosures about
`Market Risk” (Part II, Item 7A of this Form 10-K), and “Management’s Discussion and Analysis” (Part II, Item 7 of this Form 10-K). We undertake no
`obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.
`
`PART I
`ITEM 1. BUSINESS
`
`GENERAL
`
`Our vision
`
`Microsoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more. Our strategy
`is to build best-in-class platforms and productivity services for a mobile-first, cloud-first world.
`
`The mobile-first, cloud-first world is transforming the way individuals and organizations use and interact with technology. Mobility is not focused on
`any one device; it is centered on the mobility of experiences that, in turn, are orchestrated by the cloud. Cloud computing and storage solutions
`provide people and enterprises with various capabilities to store and process their data in third-party datacenters. Mobility encompasses the rich
`collection of data, applications, and services that accompany our customers as they move from setting to setting in their lives. We are transforming
`our businesses to enable Microsoft to lead the direction of this digital transformation, and enable our customers and partners to thrive in this
`evolving world.
`
`What we offer
`
`Founded in 1975, we operate worldwide in over 190 countries. We develop, license, and support a wide range of software products, services, and
`devices that deliver new opportunities, greater convenience, and enhanced value to people’s lives.
`
`Our products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and
`server management tools; software development tools; video games; and training and certification of computer system integrators and developers.
`We also design, manufacture, and sell devices, including PCs, tablets, gaming and entertainment consoles, phones, other intelligent devices, and
`related accessories, that integrate with our cloud-based offerings. We offer an array of services, including cloud-based solutions that provide
`customers with software, services, platforms, and content, and we provide solution support and consulting services. We also deliver relevant online
`advertising to a global audience.
`
`The ambitions that drive us
`
`To carry out our strategy, our research and development efforts focus on three interconnected ambitions:
`
` Reinvent productivity and business processes.
`•
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`3
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`Table of Contents
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`•
`•
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` Build the intelligent cloud platform.
` Create more personal computing.
`
`Reinvent productivity and business processes
`
`PART I
`Item 1
`
`We believe we can significantly enhance the lives of our customers using our broad portfolio of productivity, communication, and information
`services that span devices and platforms. Productivity will be the first and foremost objective, to enable people to meet and collaborate more
`easily, and to effectively express ideas in new ways. We invent new scenarios that in turn create opportunity for our partners and help businesses
`accelerate their transformation while respecting each person’s privacy choices. The foundation for these efforts will rest on advancing our leading
`productivity, collaboration, communication, and business process tools including Word, Excel, PowerPoint, Outlook, OneNote, OneDrive, Skype,
`and Microsoft Dynamics (“Dynamics”). With Office 365, we provide these familiar industry-leading productivity and business process tools as cloud
`services, enabling access from anywhere and any device. This creates an opportunity to reach new customers and expand the usage of our
`services by our existing customers. We see opportunity in combining our offerings in new ways that are mobile, collaborative, intelligent and
`trustworthy. We offer our services across platforms and devices outside our own. As people move from device to device, so will their content and
`the richness of their services. We engineer our applications so users can find, try, and buy them in friction-free ways.
`
`Build the intelligent cloud platform
`
`In deploying technology that advances business strategy, enterprises decide what solutions will make employees more productive, collaborative,
`and satisfied, and connect with customers in new and compelling ways. They work to unlock business insights from a world of data. To achieve
`these objectives, increasingly businesses look to leverage the benefits of the cloud. Helping businesses move to the cloud is one of our largest
`opportunities, and we believe we work from a position of strength. Microsoft is one of two leaders in the market.
`
`The shift to the cloud is driven by three important economies of scale: larger datacenters can deploy computational resources at significantly lower
`cost per unit than smaller ones; larger datacenters can coordinate and aggregate diverse customer, geographic, and application demand patterns,
`improving the utilization of computing, storage, and network resources; and multi-tenancy lowers application maintenance labor costs for large
`public clouds. As one of the largest providers of cloud computing at scale, we are well-positioned to help businesses move to the cloud and focus
`on innovation while leaving non-differentiating activities to reliable and cost-effective providers like Microsoft.
`
`We believe our server products and cloud services, which include Microsoft SQL Server (“SQL Server”), Windows Server, Visual Studio, System
`Center, and Microsoft Azure (“Azure”), make us the only company with a public, private, and hybrid cloud platform that can power modern
`business. With Azure, we are one of very few cloud vendors that run at a scale that meets the needs of businesses of all sizes and complexities.
`We are working to enhance the return on IT investment by enabling enterprises to combine their existing datacenters and our public cloud into a
`single cohesive infrastructure. Businesses can deploy applications in their own datacenter, a partner’s datacenter, or in our datacenters with
`common security, management, and administration across all environments, with the flexibility and scale they want.
`
`We enable organizations to securely adopt software-as-a-service applications, both our own and third-party, and integrate them with their existing
`security and management infrastructure. We continue to innovate with higher-level services including identity and directory services that manage
`employee corporate identity and manage and secure corporate information accessed and stored across a growing number of devices, rich data
`storage and analytics services, machine learning services, media services, web and mobile backend services, and developer productivity services.
`To foster a rich developer ecosystem, our platform is extensible, enabling customers and partners to further customize and enhance our solutions,
`achieving even more value. This strategy requires continuing investment in datacenters and other infrastructure to support our services.
`
`
`4
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`

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`Case 1:23-cv-01373-MN Document 16-2 Filed 03/04/24 Page 6 of 122 PageID #: 522
`Table of Contents
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`Create more personal computing
`
`PART I
`Item 1
`
`We strive to make computing more personal by putting users at the core of the experience, enabling them to interact with technology in more
`intuitive, engaging, and dynamic ways. A computing device should be not just a tool, but a partner. Windows 10 is the cornerstone of our ambition
`to usher in this era of more personal computing. We consider the launch of Windows 10 in July 2015 to be a transformative moment as we moved
`from an operating system that runs on a PC to a service that can power the full spectrum of devices. We developed Windows 10 not only to be
`familiar to our users, but more safe, secure, and always up-to-date. Windows 10 is more personal and productive with functionality such as
`Cortana, Windows Hello, Windows Ink, Microsoft Edge, and universal applications. Windows 10 is designed to foster innovation – from us, our
`partners, and developers – through rich and consistent experiences across the range of existing devices and entirely new device categories.
`
`Our ambition for Windows 10 is to broaden our economic opportunity through three key levers: an original equipment manufacturer (“OEM”)
`ecosystem that creates exciting new hardware designs for Windows 10; our own commitment to the health and profitability of our first-party
`premium device portfolio; and monetization opportunities such as services, subscriptions, gaming, and search advertising. Our OEM partners are
`investing in an extensive portfolio of hardware designs and configurations for Windows 10. We now have the widest range of Windows hardware
`ever available.
`
`With the unified Windows operating system, developers and OEMs can contribute to a thriving Windows ecosystem. We invest heavily to make
`Windows the most secure, manageable, and capable operating system for the needs of a modern workforce. We are working to create a broad
`developer opportunity by unifying the installed base to Windows 10 through upgrades and ongoing updates, and by enabling universal Windows
`applications to run across all device targets. As part of our strategic objectives, we are committed to designing and marketing first-party devices to
`help drive innovation, create new categories, and stimulate demand in the Windows ecosystem. We are developing new input/output methods
`within Windows 10, including speech, pen, gesture, and augmented reality holograms to power more personal computing experiences.
`
`Our future opportunity
`
`There are several distinct areas of technology that we aim to drive forward. Our goal is to lead the industry in these areas over the long-term, which
`we expect will translate to sustained growth. We are investing significant resources in:
` Delivering new productivity and business processes to improve how people communicate, collaborate, learn, work, play, and interact
`•
`with one another.
` Building and running cloud-based services in ways that unleash new experiences and opportunities for businesses and individuals.
` Establishing the Windows platform across servers and devices, both our own and third-party, and the cloud to drive a thriving
`ecosystem of developers, unify the cross-device user experience, and increase agility when bringing new advances to market.
` Developing new devices that have increasingly natural ways to interact with them, including speech, pen, gesture, and augmented
`reality holograms.
` Applying machine learning to make technology more intuitive and able to act on our behalf to understand and interpret our needs using
`natural methods of communication.
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`•
`•
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`•
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`•
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`We believe the breadth of our products and services portfolio, our large global partner and customer base, our growing ecosystem, and our
`ongoing investment in innovation position us to be a leader in these areas and differentiate ourselves from competitors.
`
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`5
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`Table of Contents
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`PART I
`Item 1
`
`OPERATING SEGMENTS
`
`Our segments provide management with a comprehensive financial view of our key businesses. The segments enable the alignment of strategies
`and objectives across the development, sales, marketing, and services organizations, and they provide a framework for timely and rational
`allocation of resources within businesses.
`
`In June 2015, we announced a change in organizational structure to align to our strategic direction as a productivity and platform company. During
`the first quarter of fiscal year 2016, our chief operating decision maker, who is also our Chief Executive Officer, requested changes in the
`information that he regularly reviews for purposes of allocating resources and assessing performance. As a result, beginning in fiscal year 2016,
`we report our financial performance based on our new segments, Productivity and Business Processes, Intelligent Cloud, and More Personal
`Computing.
`
`Additional information on our operating segments and geographic and product information is contained in Note 21 – Segment Information and
`Geographic Data of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K).
`
`Our reportable segments are described below.
`
`Productivity and Business Processes
`
`Our Productivity and Business Processes segment consists of products and services in our portfolio of productivity, communication, and
`information services, spanning a variety of devices and platforms. This segment primarily comprises:
` Office Commercial, including volume licensing and subscriptions to Office 365 commercial for products and services such as Office,
`•
`Exchange, SharePoint, and Skype for Business, and related Client Access Licenses (“CALs”).
` Office Consumer, including Office sold through retail or through an Office 365 consumer subscription, and Office Consumer Services,
`including Skype, Outlook.com, and OneDrive.
` Dynamics business solutions, including Dynamics ERP products, Dynamics CRM on-premises, and Dynamics CRM Online.
`
`•
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`•
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`Office Commercial
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`Office Commercial is designed to increase personal, team, and organizational productivity through a range of products and services. Growth
`depends on our ability to reach new users, add value to our core product set, and continue to expand our product and service offerings into new
`markets such as security, analytics, collaboration, unified communications, and business intelligence. Office Commercial revenue is mainly affected
`by a combination of the demand from commercial customers for volume licensing and Software Assurance and the number of information workers
`in an enterprise, as well as the continued shift to Office 365. Office 365 is our cloud-based service that provides access to Office plus other
`productivity services. CALs provide access rights to certain Office Commercial products and services, including Exchange, SharePoint, and Skype
`for Business, and revenue is reported along with the associated Office products and services.
`
`Office Consumer
`
`Office Consumer is designed to increase personal productivity through a range of products and services. Growth depends on our ability to reach
`new users, add value to our core product set, and continue to expand our product and service offerings into new markets. Office Consumer
`revenue is mainly affected by the combination of customers that buy Office with their new devices and the continued shift to Office 365. Office
`Consumer Services revenue is mainly affected by the demand for communication and storage through Skype, Outlook.com, and OneDrive, which
`is largely driven by subscriptions, advertising, and the sale of minutes. Skype is designed to connect friends, family, clients, and colleagues through
`a variety of devices.
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`6
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`Table of Contents
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`Dynamics
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`PART I
`Item 1
`
`Dynamics provides business solutions for financial management, customer relationship management (“CRM”), supply chain management, and
`analytics applications for small and mid-size businesses, large organizations, and divisions of global enterprises. Dynamics revenue is largely
`driven by the number of information workers licensed.
`
`Competition
`
`Competitors to Office include software and global application vendors such as Adobe Systems, Apple, Cisco Systems, Facebook, Google, IBM,
`Oracle, SAP, and numerous web-based and mobile application competitors as well as local application developers in Asia and Europe. Cisco
`Systems is using its position in enterprise communications equipment to grow its unified communications business. Google provides a hosted
`messaging and productivity suite. Apple distributes versions of its pre-installed application software, such as email, note-taking, and calendar
`products, through its PCs, tablets, and phones. Skype for Business and Skype also compete with a variety of instant messaging, voice, and video
`communication providers, ranging from start-ups to established enterprises. Web-based offerings competing with individual applications have also
`positioned themselves as alternatives to our products. We believe our products compete effectively based on our strategy of providing powerful,
`flexible, secure, and easy-to-use solutions that work well with technologies our customers already have and are available on a device or via the
`cloud.
`
`Our Dynamics products compete with vendors such as Oracle and SAP in the market for large organizations and divisions of global enterprises. In
`the market focused on providing solutions for small and mid-sized businesses, our Dynamics products compete with vendors such as Infor, The
`Sage Group, and NetSuite. Salesforce.com’s cloud CRM offerings compete directly with our Dynamics CRM on-premises and CRM Online
`offerings.
`
`Intelligent Cloud
`
`
`
`Our Intelligent Cloud segment consists of our public, private, and hybrid server products and cloud services that can power modern business. This
`segment primarily comprises:
` Server products and cloud services, including SQL Server, Windows Server, Visual Studio, System Center, and related CALs, as well
`•
`as Azure.
` Enterprise Services, including Premier Support Services and Microsoft Consulting Services.
`
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`•
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`Server Products and Cloud Services
`
`Our server products are designed to make IT professionals, developers, and their systems more productive and efficient. Server software is
`integrated server infrastructure and middleware designed to support software applications built on the Windows Server operating system. This
`includes the server platform, database, business intelligence, storage, management and operations, virtualization, service-oriented architecture
`platform, security, and identity software. We also license standalone and software development lifecycle tools for software architects, developers,
`testers, and project managers. Server products and cloud services revenue is mainly affected by purchases through volume licensing programs,
`licenses sold to OEMs, and retail packaged products. CALs provide access rights to certain server products, including SQL Server and Windows
`Server, and revenue is reported along with the associated server product.
`
`Azure is a scalable cloud platform with computing, networking, storage, database, and management, along with advanced services such as
`analytics, and comprehensive solutions such as Enterprise Mobility Suite. Azure includes a flexible platform that helps developers build, deploy,
`and manage enterprise, mobile, web, and Internet of Things applications, for any platform or device without having to worry about the underlying
`infrastructure. Azure enables customers to devote more resources to development and use of applications that benefit their organizations, rather
`than managing on-premises hardware and software.
`
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`7
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`

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`Case 1:23-cv-01373-MN Document 16-2 Filed 03/04/24 Page 9 of 122 PageID #: 525
`Table of Contents
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`Enterprise Services
`
`PART I
`Item 1
`
`Enterprise Services, including Premier Support Services and Microsoft Consulting Services, assist customers in developing, deploying, and
`managing Microsoft server and desktop solutions and provide training and certification to developers and IT professionals on various Microsoft
`products.
`
`Competition
`
`Our server products face competition from a wide variety of server operating systems and applications offered by companies with a range of
`market approaches. Vertically integrated computer manufacturers such as Hewlett-Packard, IBM, and Oracle offer their own versions of the Unix
`operating system preinstalled on server hardware. Nearly all computer manufacturers offer server hardware for the Linux operating system and
`many contribute to Linux operating system development. The competitive position of Linux has also benefited from the large number of compatible
`applications now produced by many commercial and non-commercial software developers. A number of companies, such as Red Hat, supply
`versions of Linux.
`
`We compete to provide enterprise-wide computing solutions and point solutions with numerous commercial software vendors that offer solutions
`and middleware technology platforms, software applications for connectivity (both Internet and intranet), security, hosting, database, and e-
`business servers. IBM and Oracle lead a group of companies focused on the Java Platform Enterprise Edition that competes with our enterprise-
`wide computing solutions. Commercial competitors for our server applications for PC-based distributed client/server environments include CA
`Technologies, IBM, and Oracle. Our web application platform software competes with open source software such as Apache, Linux, MySQL, and
`PHP. In middleware, we compete against Java vendors.
`
`Our database, business intelligence, and data warehousing solutions offerings compete with products from IBM, Oracle, SAP, and other
`companies. Our system management solutions compete with server management and server virtualization platform providers, such as BMC, CA
`Technologies, Hewlett-Packard, IBM, and VMware. Our products for software developers compete against offerings from Adobe, IBM, Oracle,
`other companies, and open-source projects, including Eclipse (sponsored by CA Technologies, IBM, Oracle, and SAP), PHP, and Ruby on Rails,
`among others.
`
`We believe our server products provide customers with advantages in performance, total costs of ownership, and productivity by delivering
`superior applications, development tools, compatibility with a broad base of hardware and software applications, security, and manageability.
`
`Azure faces diverse competition from companies such as Amazon, Google, IBM, Oracle, Salesforce.com, VMware, and open source offerings.
`Azure’s competitive advantage includes enabling a hybrid cloud, allowing deployment of existing datacenters with our public cloud into a single,
`cohesive infrastructure, and the ability to run at a scale that meets the needs of businesses of all sizes and complexities.
`
`Our Enterprise Services business competes with a wide range of companies that provide strategy and business planning, application development,
`and infrastructure services, including multinational consulting firms and small niche businesses focused on specific technologies.
`
`More Personal Computing
`
`Our More Personal Computing segment consists of products and services geared towards harmonizing the interests of end users, developers, and
`IT professionals across screens of all sizes. This segment primarily comprises:
` Windows, including Windows OEM licensing (“Windows OEM”) and other non-volume licensing of the Windows operating system,
`•
`volume licensing of the Windows operating system, patent licensing, Windows Embedded, MSN display advertising, and Windows
`Phone licensing.
` Devices, including Microsoft Surface (“Surface”), phones, and PC accessories.
`
`•
`
`8
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`Table of Contents
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`•
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`•
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` Gaming, including Xbox hardware; Xbox Live, comprising transactions, subscriptions, and advertising; video games; and third-party
`video game royalties.
` Search advertising.
`
`PART I
`Item 1
`
`Windows
`
`The Windows operating system is designed to deliver a more personal computing experience for users by enabling consistency of experience,
`applications, and information across their devices. We consider the launch of Windows 10 in July 2015 to be a transformative moment as we
`moved from an operating system that runs on a PC to a service that can power the full spectrum of devices.
`
`Windows revenue is impacted significantly by the number of Windows operating system licenses purchased by OEMs, which they pre-install on the
`devices they sell. In addition to computing device market volume, Windows revenue is impacted by:
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` The mix of computing devices based on form factor and screen size.
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` Differences in device market demand between developed markets and emerging markets.
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` Attachment of Windows to devices shipped.
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` Customer mix between consumer, small- and medium-sized businesses, and large enterprises.
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` Changes in inventory levels in the OEM channel.
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` Pricing changes and promotions, pricing variation that occurs when the mix of devices manufactured shifts from local and regional
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`system builders to large multinational OEMs, and different pricing of Windows versions licensed.
` Piracy.
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`Volume licensing of the Windows operating system is affected mainly by the demand from commercial customers for volume licensing and
`Software Assurance, often reflecting the number of information workers in a licensed enterprise, and is therefore relatively independent of the
`number of PCs sold in a given year.
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`Patent licensing includes our programs to license patents across a broad array of technology areas, including mobile devices and cloud offerings.
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`Windows Embedded extends the power of Windows and the cloud to intelligent systems by delivering specialized operating systems, tools, and
`services.
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`Display advertising primarily includes MSN ads. In June 2015, we entered into agreements with AOL and AppNexus to outsource our display sales
`responsibility.
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`The Windows Phone operating system is designed to bring users closer to the people, applications, and content they need. Prior to our acquisition
`of Nokia Corporation’s (“Nokia”) Devices and Services business (“NDS”) in April 2014, Microsoft and Nokia jointly created new mobile products and
`services and extended established products and services to new markets through a strategic alliance.
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`Devices
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`We design, manufacture, and sell devices such as Surface