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 and Exchange Commission. We do not undertake any duty to update any forward looking statements.

Q2-04 Results Total Revenue - $10.15 billion Total Revenue - $10.15 billion 19% growth versus last year 19% growth versus last year 20+% growth Client, IW, Server & Tools 20+% growth Client, IW, Server & Tools Operating Income - $1.48 billion Operating Income - $1.48 billion $1.0 billion normal stock based compensation $1.0 billion normal stock based compensation $2.2 billion employee Stock Option Transfer Program $2.2 billion employee Stock Option Transfer Program Earnings per Share - $0.14 Earnings per Share - $0.14 $0.06 normal stock based compensation $0.06 normal stock based compensation $0.14 Stock Option Transfer Program $0.14 Stock Option Transfer Program EPS Guidance for Q2 was $0.23 to $0.24 EPS Guidance for Q2 was $0.23 to $0.24

FY2004 Guidance* Q3 Revenue: $8.6 to $8.7 billion Revenue: $8.6 to $8.7 billion Operating Income: $3.0 to $3.1 billion (including stock comp $750 million) Operating Income: $3.0 to $3.1 billion (including stock comp $750 million) EPS: $0.23 to $0.24 (stock comp $0.05) EPS: $0.23 to $0.24 (stock comp $0.05) Full FY 2004 Revenue: $35.6 to $35.9 billion Revenue: $35.6 to $35.9 billion Operating Income: $10.3 to $10.6 billion (including stock comp $5.7 billion) Operating Income: $10.3 to $10.6 billion (including stock comp $5.7 billion) EPS $0.82 to $0.83 (stock comp $0.35) EPS $0.82 to $0.83 (stock comp $0.35) * Guidance as of Jan 22, Includes stock based compensation charge of approximately $0.35 (inclusive of employee Stock Option Transfer Program $0.14)

Trailing 3 calendar year revenue and operating profit CAGR* * based on three year growth figures for operating income, excluding certain items and stock based compensation expense for calendar year 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?* Diversified Business Model ** Includes MSN, Xbox, Services *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?* *Based on trailing 4 quarter data.

How should we look at unearned revenue? + 7% Normalized FY04 unearned growth of ~ 7%

What is the impact of stock compensation? Employee Stock Option Transfer program $2.2 billion Issued 57 million shares for stock awards in Q1-04 Employee Stock Option Transfer Program = $2.2B Employee Option/Stock Overhang* (% of shares outstanding) 6/30/0117% 6/30/0215% 6/30/0314% 12/31/0311% *excluding options transferred to JP Morgan in connection with the employee stock option transfer program.

Are you making progress on emerging businesses performance? Operating Income (Loss) % Net Revenue* BusinessSolutionsMEDMSNHome & 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 Economy / IT spend Hardware demand Hardware demand PC unit demand PC unit demand Server demand Server demand Foreign exchange Foreign exchange Product success Product success Office 2003 Office 2003 Windows Server 2003 Windows Server 2003 Exchange 2003 Exchange 2003 Small Business Server 2003 Small Business Server 2003 Yukon Yukon Upgrade Advantage conversion Upgrade Advantage conversion Equity compensation Equity compensation Focus on cost efficacy and operating income growth Focus on cost efficacy and operating income growth

Open source continues to be a threat Open source continues to be a threat Security is top of mind Security is top of mind Broad IT recovery starting Broad IT recovery starting Sales organization execution improving Sales organization execution improving Excellent product momentum – Office 2003, Windows Server 2003, Small Business Server 2003 Excellent product momentum – Office 2003, Windows Server 2003, Small Business Server 2003 Closing thoughts

Reconciliation of non-GAAP measures found in slide #5: Trailing 3 calendar year revenue and operating profit CAGR* Calendar Year 2000 Calendar Year 2003 Three Months Ended Operating Income (GAAP) Stock based compensation expense Other (settlement of AOL lawsuit and other legal costs) Non-GAAP Microsoft figure in Slide 5 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 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. Slide #5 in this presentation includes three year growth figures for operating income, excluding certain items and stock based compensation expense for calendar year Set forth below is a reconciliation of the non-GAAP measure presented in that slide to GAAP operating income for those periods.

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