Microsoft Corporation

John Connors
Chief Financial Officer
January, 2004
This presentation may contain statements that
are forward looking. These statements are
based on current expectations and
assumptions that are subject to risks and
uncertainties. Actual results could differ
materially because of factors listed in the last
page of this presentation, discussed in previous
press releases, and in the management
discussion and analysis section of the
company’s 2004 form 10Qs, 2003 form 10-Q
and other reports and filings with the Securities
Q2-04 Results
 Total Revenue - $10.15 billion
 19% growth versus last year
 20+% growth Client, IW, Server & Tools

 Operating Income - $1.48 billion

 $1.0 billion normal stock based compensation
 $2.2 billion employee Stock Option Transfer
Program

 Earnings per Share - $0.14

 $0.06 normal stock based compensation
 $0.14 Stock Option Transfer Program
 EPS Guidance for Q2 was $0.23 to $0.24
FY2004 Guidance*
Q3
 Revenue: $8.6 to $8.7 billion
 Operating Income: $3.0 to $3.1 billion
(including stock comp $750 million)
 EPS: $0.23 to $0.24 (stock comp $0.05)
Full FY 2004
 Revenue: $35.6 to $35.9 billion
 Operating Income: $10.3 to $10.6 billion
(including stock comp $5.7 billion)
1
 EPS $0.82 to $0.83 (stock comp $0.35)
1
Includes stock based compensation charge of approximately $0.35 (inclusive of
* employee Stock
Guidance Option
as of Jan Transfer
22, Program $0.14)
2004
Trailing 3 calendar year
revenue and operating profit
CAGR* 12% OI
MSFT 13% REV

SAP ($) 24%

12%

Oracle -1%
-3%
-7%
Intel
-4% 3 year growth ($)
REV OI
IBM 0% MSFT $10,492 $4,400
0% SAP ($) $2,135 $1,024
Oracle ($1,087) ($165)
Dell 9% Intel ($3,585) ($2,054)
9% IBM $735 ($7)
Dell $9,564 $796
2%
-5% Cisco Cisco ($3,678) $294

-10% 0% 10% 20% 30%

* based
based on three year growth figures for operating income, excluding certain items
and stock based compensation expense for calendar year 2003. A reconciliation of
the non-GAAP measures presented above to to reported GAAP operating income for
the relevant periods can be found in slide #13.
What does our business
model look like today?*
Sale and Delivery Method Customer Type

Annuity Consumer
26% 21%
License* * Enterprise
42% 40%

** Includes
OEM MSN, Xbox, SMB
32% Services 39%

Diversified Business Model

*Sale and Delivery method based on trailing 4 quarter billings. Customer type data based on fiscal year to
date information.
 How do we sell our
products?*
Client Annuity
15% OEM
20%
Information Worker

License Annuity
10% 40%

OEM
License
75%
40%

OEM
10%
Server & Tools

Annuity
40%

License
50%

*Based on trailing 4 quarter data.

How should we look at
unearned revenue?
$10,000

$1,100
$8,000 + $600

7%
$6,000

$4,000 $7,915 $7,852

$2,000

$0
6/ 30/ 03 6/ 30/ 04 EST

Normalized FY04 unearned growth

What is the impact of
stock compensation?
$5,745
Employee Stock Employee Option/Stock Overhang*
Option Transfer
(% of shares outstanding)
Program = $2.2B
6/30/01 17%
6/30/02 15%
6/30/03 14%
12/31/03 11%

*excluding options
transferred to JP
Morgan in connection
with the employee
stock option transfer
FY02 FY03 FY04E FY05E FY06E FY07E FY08E program.

Employee Stock Option Transfer program $2.2

billion
Are you making progress on
emerging businesses
performance?
OperatingBusiness
Income (Loss) % Net
Home
Revenue*Solutions MED MSN & Ent.
FY02 (64)% (194)% (39)% (36)%

FY03 (53)% (114)% (17)% (34)%

/
FY04
Continue to improve the profitability of
emerging businesses
*Presented in accordance with SFAS 131, Disclosures about Segments of an
Enterprise and Related Information
How should we begin to
model FY05?
 Economy / IT spend
 Hardware demand
 PC unit demand
 Server demand
 Foreign exchange
 Product success
 Office 2003
 Windows Server 2003
 Exchange 2003
 Small Business Server 2003
 Yukon
 Upgrade Advantage conversion
 Equity compensation
 Focus on cost efficacy and operating income growth
Closing thoughts
 Open source continues to be a threat
 Security is top of mind
 Broad IT recovery starting
 Sales organization execution improving
 Excellent product momentum – Office
2003, Windows Server 2003, Small
Business Server 2003
 Reconciliation of non-GAAP
measures found in slide #5:
Trailing 3 calendar year revenue
and operating profit CAGR*
Slide #5 in this presentation includes three year growth figures for operating income,
excluding certain items and stock based compensation expense for calendar year 2003. Set
forth below is a reconciliation of the non-GAAP measure presented in that slide to GAAP
operating income for those periods.
Calendar Year Calendar Year 2003
2000

Three Months Operating Income Operating Income Stock based Other (settlement of Non-GAAP Microsoft
Ended (GAAP) (GAAP) compensation AOL lawsuit and other figure in Slide 5
expense legal costs)

March 31 $2,728 $2,744 $978 - $3,722

June 30 $2,524 $1,540 $666 $796 $3,002

September 30 $2,777 $3,148 $1,014 - $4,162

December 31 $3,194 $1,475 $3,232 - $4,707

Total $11,223 $8,907 $5,890 $796 $15,593

GAAP operating income for calendar year 2003 was $8,907 vs. adjusted operating income for
calendar year 2003 (as noted in slide #5) of $15,593. GAAP operating income decreased by $2,316
from calendar year 2000 to 2003 resulting in compounded annual growth of (7.4)%. Adjusted
operating income increased by $4,370 over the same period, resulting in compounded annual
growth of 11.6% as presented in slide #5. Note also that calendar year 2000 operating income
was not restated for the adoption of SFAS 123.
© 2004 Microsoft Corporation. All rights reserved.
This presentation is for informational purposes only. Microsoft makes no warranties, express or implied,
in this summary.