Microsoft Announces Record Quarterly Revenue

REDMOND, Wash., Jan. 17, 2002 — Microsoft Corp. today announced record revenue of $7.74 billion for the quarter ended Dec. 31, 2001, an 18 percent increase over the $6.55 billion reported in the prior year. Operating income for the quarter was $2.84 billion, including a $660 million charge for estimated expenses in connection with consumer class action lawsuits. Including this charge, net income was $2.28 billion. Diluted earnings per share for the quarter were $0.41, including $0.08 for the estimated charge.

“We reported record revenue this quarter on the strength of three very successful product launches. Windows® XP, Xbox™ and MSN® 7 are off to terrific starts. Additionally, our continued focus on cost control and efficiency really paid off in terms of our operating results,”
said John Connors, chief financial officer at Microsoft.
“While we are pleased with our results this quarter, we are concerned about the health of the global economy and have yet to see a recovery in many of the world’s largest markets.”

Since the launch of Windows XP on Oct. 25, over 17 million copies have been sold by computer manufacturers on new personal computers and by retailers, making it the most successful Windows launch ever.
“Windows XP drove great results for the Windows division this quarter. Client operating system sales were up 24 percent from last year,”
said Jim Allchin, group vice president of platforms at Microsoft.
“Windows XP is the best operating system we’ve ever created. It delivers exciting new digital experiences to home and business users alike, and our results reflect the enthusiastic response from our customers and industry partners.”

During the quarter, Microsoft sold 1.5 million Xbox video game systems to enthusiastic gamers in North America, making the launch one of the most successful in video game history. Additionally, Microsoft video games such as Halo™ and Project Gotham Racing™
, and third party titles such as Dead or Alive 3 from Tecmo, Inc. and Max Payne from Take-Two Interactive, proved to be very popular this holiday season.
“It feels great to kick off the global rollout of Xbox with a spectacular launch in North America,”
said Robbie Bach, senior vice president and chief Xbox officer at Microsoft.
“With more exciting games in the pipeline, upcoming launches in Japan, Europe and Australia, and compelling new online gaming opportunities, 2002 looks to be an even more promising year.”

MSN experienced strong growth this quarter on the strength of the Oct. 25 launch of MSN 7, the newest version of MSN designed to give consumers around the world the most useful Internet experience. MSN now has more than 8 million subscriptions, including more than 7.7 million MSN Internet Access subscribers and more than 300,000 subscribers of other MSN premium services. MSN Search achieved the top ranking in terms of reach in the United States according to Jupiter Media Metrix. And MSN announced multi-million dollar advertising alliances with Volvo Cars of North America, LLC, and Bank One Corp.

Business Outlook

Management offers the following guidance for the quarter ending March 31, 2002:

  • Revenue is expected to be in the range of $7.3 to $7.4 billion.

  • Operating income is expected to be in the range of $2.8 to $2.9 billion.

  • Diluted earnings per share is expected to be $0.50 or $0.51.

Management offers the following guidance for the full fiscal year ending June 30, 2002:

  • Revenue is expected to be in the range of $28.8 to $29.1 billion.

  • Operating income is expected to be in the range of $11.5 to $11.8 billion.

  • Diluted earnings per share is expected to be in the range of $1.57 to $1.60.

Webcast Details

Microsoft will hold an audio webcast at 2:30 p.m. PST (5:30 p.m. EST) today with John Connors to discuss additional details regarding the company’s performance for the quarter and other forward-looking information. The session may be accessed at http://www.microsoft.com/msft/ . The webcast will be available for replay through the close of business on Friday, Jan. 25, 2002.

Forward-Looking Statements

Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as: entry into markets with vigorous competition, market acceptance of new products and services, continued acceptance of existing products and services, changes in licensing programs, delays in product development and related product release schedules, reliance on sole source suppliers, or shortages of key components for hardware products that delay product delivery, any of which may cause revenues and income to fall short of anticipated levels; obsolete inventory or product returns by distributors, resellers and retailers; warranty and other claims on hardware products; higher relative marketing expenses associated with new product releases; changes in the rate of PC shipments; technological shifts; customer demand for our product and services; the support of third party software developers for new or existing platforms; the availability of competitive products or services at prices below our prices or for no charge; changes in product and service mix; product life cycles; product sale terms and conditions; the company’s ability to efficiently integrate acquired businesses; implementation of cost structures that align with revenue growth; the financial condition of our customers and vendors; unavailability of insurance; uninsured losses; adverse results in litigation; the effects of terrorist activity and armed conflict such as disruptions in general economic activity and changes in our operations and security arrangements; general economic conditions that affect demand for computer hardware or software; currency fluctuations; trade sanctions or changes to U.S. tax law resulting from the World Trade Organization decision with respect to the extraterritorial income provisions of U.S. tax law; and financial market volatility or other changes affecting the value of our investments that may result in a reduction in carrying value and recognition of losses.

For further information regarding risks and uncertainties associated with Microsoft’s business, please refer to the
“Management’s Discussion and Analysis of Results of Operations and Financial Condition”
and
“Risk Factors”
sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s investor relations department at (425) 882-8080 or Microsoft’s investor relations website at http://www.microsoft.com/msft .

All information in this release is as of Jan. 17, 2002. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.

Founded in 1975, Microsoft (Nasdaq
“MSFT”
) is the worldwide leader in software, services and Internet technologies for personal and business computing. The company offers a wide range of products and services designed to empower people through great software — any time, any place and on any device.

Microsoft, Windows, Xbox and MSN are either registered trademarks or trademarks of Microsoft Corp. in the United States and/or other countries.The names of actual companies and products mentioned herein may be the trademarks of their respective owners.

For more information, financial analysts only: Krish Srinivasan, senior director, Investor Relations (425) 706-3703 For more information, press only: Caroline Boren, Waggener Edstrom, (425) 638-7000, carolineb@wagged.com Katy Fonner, Waggener Edstrom, (503) 443-7000, kfonner@wagged.com

Rachel Wayne, Waggener Edstrom, (503) 443-7000, rwayne@wagged.com

Note to editors: If you are interested in viewing additional information on Microsoft, please visit the Microsoft Web page at http://www.microsoft.com/presspass/ on Microsoft’s corporate information pages. Shareholder and financial information as well as today’s 2:30 p.m. PST conference call with investors and analysts is available at http://www.microsoft.com/msft/ .