Microsoft Reports Record Revenue of $24.

52 Billion in Second Quarter

REDMOND, Wash. January 23, 2014 Microsoft Corp. today announced revenue of $24.52 billion for the quarter ended December 31, 2013. Gross margin, operating income, net income, and diluted earnings per share for the quarter were $16.24 billion, $7.97 billion, $6.56 billion, and $0.78 per share, respectively. The following table reconciles these financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. We have provided this non-GAAP financial information to aid investors in better understanding the companys performance.
Three Months Ended December 31, Revenue deferred for Windows Upgrade 2012 As Offer, Office Deferral, Reported and Video Game (GAAP) Deferral $21,456 $7,771 $0.76 $1,329 $1,329 $0.13 Revenue recognized for Windows 8 Pre-sales ($783) ($783) ($0.08) 2012 As Adjusted (NonGAAP) $22,002 $8,317 $0.81

($ in millions, except per share amounts) Revenue Operating Income EPS

2013 As %Y/Y Reported %Y/Y (Non(GAAP) (GAAP) GAAP) $24,519 $7,969 $0.78 14% 3% 3% 11% (4)% (4)%

Our Commercial segment continues to outpace the overall market, and our Devices and Consumer segment had a great holiday quarter, said Steve Ballmer, chief executive officer at Microsoft. The investments we are making in devices and services that deliver high-value experiences to our customers, and the work we are doing with our partners, are driving strong results and positioning us well for longterm growth. We delivered record revenue as demand for our business offerings remains high and we made strong progress in our Devices and Consumer segment, said Amy Hood, chief financial officer at Microsoft. These results reflect our focus on execution, cost discipline, and long-term shareholder value as we continue to drive the strategic transformation of the company. Devices and Consumer revenue grew 13% to $11.91 billion. Windows OEM revenue declined 3%, reflecting strong 12% growth in Windows OEM Pro revenue, offset by continued softness in the consumer PC market. Surface revenue more than doubled sequentially, from $400 million in the first quarter to $893 million in the second quarter. The company sold 7.4 million Xbox console units into the retail channel, including 3.9 million Xbox One consoles and 3.5 million Xbox 360 consoles. Bing search share grew to 18.2% and search advertising revenue grew 34%.

Commercial revenue grew 10% to $12.67 billion. SQL Server continued to gain market share with revenue growing double-digits. System Center showed continued strength with double-digit revenue growth. Commercial cloud services revenue more than doubled. Office 365 commercial seats and Azure customers both grew triple-digits.

"We significantly outpaced enterprise IT spend as we continue to take share from our competitors by delivering the devices and services our customers need as they transition to the cloud, said Kevin Turner, chief operating officer at Microsoft. Our commercial cloud services revenue grew more than 100% year -

over-year, as customers are embracing Office 365, Azure, and Dynamics CRM Online, and making longterm commitments to the Microsoft platform. Business Outlook Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast detailed below. Webcast Details Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, and Chris Suh, general manager of Investor Relations, will host a conference call and webcast at 2:30 p.m. PST (5:30 p.m. EST) today to discuss details of the companys performance for the quarter and certain forward looking information. The session may be accessed at http://www.microsoft.com/investor. The webcast will be available for replay through the close of business on January 23, 2015. Adjusted Financial Results and Non-GAAP Measures During the second quarter of fiscal year 2013, GAAP revenue, operating income, and diluted earnings per share included the net deferral of $1.3 billion of revenue for the Windows Upgrade Offer, the Office Upgrade Offer and Pre-sales, and the Video Game Deferral, and the recognition of previously deferred revenue of $783 million for Windows 8 Pre-sales. These items are defined below. In addition to these financial results reported in accordance with GAAP, we have provided certain non-GAAP financial information to aid investors in better understanding the companys performance. Presenting these measures without the impact of these items gives additional insight into operational performance and helps clarify trends affecting the companys business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance. These non-GAAP financial measures should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. Non-GAAP Definitions Revenue deferred on sales of Windows 7 with an option to upgrade to Windows 8 Pro at a discounted price (Windows Upgrade Offer). Revenue deferred on pre-sales of Windows 8 to OEMs and retailers before general availability (Windows 8 Pre-sales). Revenue deferred on sales of the previous version of the Microsoft Office system with a guarantee to be upgraded to the new Office at minimal or no cost and pre-sales of the new Office to OEMs and retailers before general availability (collectively, the Office Deferral). Revenue deferred on sales of video games with the right to receive specified software upgrades/enhancements (Video Game Deferral). About Microsoft Founded in 1975, Microsoft (Nasdaq MSFT) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential. 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: intense competition in all of Microsofts markets;

increasing focus on services presents execution and competitive risks; significant investments in new products and services that may not be profitable; acquisitions, joint ventures, and strategic alliances, including our acquisition of Nokias Devices and Services business, may have an adverse effect on our business; Microsofts continued ability to protect its intellectual property rights; claims that Microsoft has infringed the intellectual property rights of others; the possibility of unauthorized disclosure of significant portions of Microsofts source code; cyber-attacks and security vulnerabilities in Microsoft products that could reduce revenue or lead to liability; disclosure of personal data that could result in liability and harm to Microsofts reputation; outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure; government litigation and regulation that may limit how Microsoft designs and markets its products; Microsofts ability to attract and retain talented employees; delays in product development and related product release schedules; adverse economic or market conditions may harm our business; adverse results in legal disputes; unanticipated tax liabilities; our hardware and software products may experience quality or supply problems; impairment of goodwill or amortizable intangible assets causing a charge to earnings; exposure to increased economic and regulatory uncertainties from operating a global business; and catastrophic events or geo-political conditions may disrupt our business.

For more information about risks and uncertainties associated with Microsofts business, please refer to the Managements Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors sections of Microsofts 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 Microsofts Investor Relations department at (800) 285-7772 or at Microsofts Investor Relations websit e at http://www.microsoft.com/investor. All information in this release is as of January 23, 2014. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the companys expectations. For more information, press only: Rapid Response Team, Waggener Edstrom Worldwide, (503) 443-7070, rrt@waggeneredstrom.com For more information, financial analysts and investors only: Chris Suh, general manager, Investor Relations, (425) 706-4400 Note to editors: For more information, news and perspectives from Microsoft, please visit the Microsoft News Center at http://www.microsoft.com/news/. Web links, telephone numbers, and titles were correct at time of publication, but may since have changed. Shareholder and financial information, as well as todays 2:30 p.m. PST conference call with investors and analysts, is available at http://www.microsoft.com/investor.

MICROSOFT CORPORATION INCOME STATEMENTS (In millions, except per share amounts)(Unaudited) Three Months Ended December 31, 2013 2012 $ 24,519 $21,456 8,284 5,692 16,235 15,764 2,748 4,283 1,235 8,266 7,969 (91) 7,878 1,320 $ 6,558 2,528 4,309 1,156 7,993 7,771 (1) 7,770 1,393 $ 6,377 $ Six Months Ended December 31, 2013 2012 43,048 $37,464 13,398 9,860 29,650 27,604 5,515 7,587 2,245 15,347 14,303 (17) 14,286 2,484 11,802 4,988 7,254 2,283 14,525 13,079 225 13,304 2,461 $10,843

Revenue Cost of revenue Gross margin Operating expenses: Research and development Sales and marketing General and administrative Total operating expenses Operating income Other income (expense) Income before income taxes Provision for income taxes Net income

Earnings per share: Basic $ Diluted $ Weighted average shares outstanding: Basic Diluted Cash dividends declared per common share $

0.79 0.78 8,326 8,395 0.28

$ $

0.76 0.76 8,393 8,444

$ $

1.42 1.40 8,333 8,423

$ $

1.29 1.28 8,395 8,480

0.23

0.56

0.46

MICROSOFT CORPORATION

COMPREHENSIVE INCOME STATEMENTS (In millions)(Unaudited) Three Months Ended December 31, 2013 2012 $ 6,558 $ 6,377 Six Months Ended December 31, 2013 2012 11,802 $10,843

Net income Other comprehensive income (loss): Net unrealized gains (losses) on derivatives (net of tax effects of $1, $(5), $(2) and $(29)) Net unrealized gains on investments (net of tax effects of $245, $103, $737 and $251) Translation adjustments and other (net of tax effects of $11, $2, $44 and $92) Other comprehensive income Comprehensive income

43

(9)

17

(54)

482

192

1,434

466

21 546 $ 7,104

3 186 $ 6,563 $

83 1,534 13,336

172 584 $11,427

MICROSOFT CORPORATION BALANCE SHEETS (In millions)(Unaudited) December 31, 2013 Assets Current assets: Cash and cash equivalents Short-term investments (including securities loaned of $685 and $579) Total cash, cash equivalents, and short-term investments Accounts receivable, net of allowance for doubtful accounts of $316 and $336 Inventories Deferred income taxes Other Total current assets Property and equipment, net of accumulated depreciation of $13,686 and $12,513 Equity and other investments Goodwill Intangible assets, net Other long-term assets Total assets Liabilities and stockholders' equity Current liabilities: Accounts payable Short-term debt Current portion of long-term debt Accrued compensation Income taxes Short-term unearned revenue Securities lending payable Other Total current liabilities Long-term debt Long-term unearned revenue Deferred income taxes Other long-term liabilities Total liabilities Commitments and contingencies Stockholders' equity: Common stock and paid-in capital - shares authorized 24,000; outstanding 8,300 and 8,328 Retained earnings Accumulated other comprehensive income Total stockholders' equity Total liabilities and stockholders' equity $ $ $ 10,059 73,885 83,944 15,986 1,594 1,328 4,018 106,870 11,567 14,607 14,680 2,945 2,874 153,543 $ 3,804 73,218 77,022 17,486 1,938 1,632 3,388 101,466 9,991 10,844 14,655 3,083 2,392 $ 142,431 June 30, 2013

5,398 300 2,000 3,169 591 17,616 748 3,920 33,742 20,676 1,858 2,377 9,790 68,443

4,828 0 2,999 4,117 592 20,639 645 3,597 37,417 12,601 1,760 1,709 10,000 63,487

67,476 14,347 3,277 85,100 153,543

67,306 9,895 1,743 78,944 $ 142,431

MICROSOFT CORPORATION CASH FLOW STATEMENTS (In millions)(Unaudited) Three Months Ended December 31, 2013 2012 Operations Net income Adjustments to reconcile net income to net cash from operations: Depreciation, amortization, and other Stock-based compensation expense Net recognized losses on investments and derivatives Excess tax benefits from stock-based compensation Deferred income taxes Deferral of unearned revenue Recognition of unearned revenue Changes in operating assets and liabilities: Accounts receivable Inventories Other current assets Other long-term assets Accounts payable Other current liabilities Other long-term liabilities Net cash from operations Financing Short-term debt repayments, maturities less than 90 days, net Proceeds from issuance of debt Repayments of debt Common stock issued Common stock repurchased Common stock cash dividends paid Excess tax benefits from stock-based compensation Other Net cash from (used in) financing Investing Additions to property and equipment Acquisition of companies, net of cash acquired, and purchases of intangible and other assets Purchases of investments Maturities of investments Sales of investments Securities lending payable Net cash used in investing Effect of exchange rates on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period $ 6,558 $ 6,377

Six Months Ended December 31, 2013 2012 $ 11,802 $10,843

1,261 591 47 (20) (176) 9,845 (10,578)

1,009 603 22 (9) 140 10,737 (10,483)

2,215 1,226 140 (225) 228 17,281 (20,255)

1,719 1,206 33 (186) 178 18,946 (19,253)

(4,875) 1,029 (95) (315) 602 388 151 4,413

(4,488) (33) 150 (80) 685 168 (18) 4,780

1,742 362 (651) (396) 326 (867) (310) 12,618

1,668 (506) (235) (313) 118 (1,119) 165 13,264

(712) 8,262 (588) 117 (2,113) (2,332) 20 (39) 2,615

0 2,232 0 145 (1,658) (1,933) 9 (16) (1,221)

0 8,850 (1,588) 320 (4,301) (4,248) 225 (39) (781)

0 2,232 0 562 (3,290) (3,609) 186 (16) (3,935)

(1,732)

(930)

(2,963)

(1,533)

(139) (13,126) 1,451 12,354 167 (1,025) 33 6,036 4,023 $ 10,059

(311) (10,074) 1,989 7,126 (393) (2,593) 15 981 5,036 $ 6,017 $

(154) (27,894) 1,798 23,471 103 (5,639) 57 6,255 3,804 10,059

(1,456) (30,212) 3,248 20,433 (792) (10,312) 62 (921) 6,938 $ 6,017

MICROSOFT CORPORATION SEGMENT REVENUE AND GROSS MARGIN (In millions)(Unaudited) Three Months Ended December 31, 2013 2012 Revenue Devices and Consumer Licensing Devices and Consumer Hardware Devices and Consumer Other Commercial Licensing Commercial Other Corporate and Other Total revenue Gross Margin Devices and Consumer Licensing Devices and Consumer Hardware Devices and Consumer Other Commercial Licensing Commercial Other Corporate and Other Total gross margin $ 5,384 4,729 1,793 10,888 1,780 (55) $ 5,703 2,808 1,999 10,135 1,389 (578) $21,456 $ 9,727 6,214 3,428 20,482 3,383 (186) $10,381 3,892 3,399 19,080 2,637 (1,925) $37,464 Six Months Ended December 31, 2013 2012

$ 24,519

$ 43,048

4,978 411 431 10,077 415 (77)

$ 5,131 762 886 9,326 216 (557) $15,764

8,903 617 783 18,878 690 (221)

$ 9,234 1,210 1,248 17,509 321 (1,918) $27,604

$ 16,235

$ 29,650