The

outcome of such lawsuits and the impact on the Company are not estimable at this

time.

The Year 2000 issue also affects the Company's internal systems, including

information technology (IT) and non-IT systems.  Microsoft is assessing the

readiness of its systems for handling the Year 2000.  Although the assessment is

still underway, management currently believes that all material systems will be

compliant by the Year 2000 and that the cost to address the issues is not

material.  Nevertheless, Microsoft is creating contingency plans for certain

internal systems.

All organizations dealing with the Year 2000 must address the effect this issue

will have on their third-party supply chain.  Microsoft is undertaking steps to

identify its vendors and to formulate a system of working with key third-parties

to understand their ability to continue providing services and products through

the change to 2000.  Microsoft will work directly with its key vendors,

distributors, and resellers,  and partner with them if necessary, to avoid any

business interruptions in 2000.  For these key third-parties, contingency plans

will be developed.

Resolving Year 2000 issues is a worldwide phenomenon that will likely absorb a

substantial portion of IT budgets and attention in the near term.  Certain

industry analysts believe the Year 2000 issue will accelerate the trend toward

distributed PC-based systems from mainframe systems, while others believe a

majority of IT resources will be devoted to fixing older mainframe software in

lieu of large-scale transitions to systems based on software such as that sold

by Microsoft.  The impact of the Year 2000 on future Microsoft revenue is

difficult to discern but is a risk to be considered in evaluating future growth

of the Company.