offer employees more stable equity compensation, and will better align employee and shareholder interests.



While we continue to invest for the future, we also continue to search for ways to reduce overhead and become more efficient. We recently named chief financial officers for each of our seven business segments to help further improve our financial management.



The path forward

We believe our business plan puts us on a sure path to achieve our goals. All our actions are aimed at putting the customer first. Doing so, we believe, is critical to our continued success.



Making technology easier and better for customers was our inspiration 20 years ago, when Microsoft announced its graphical user interface for personal computers. We called it Windows, and it helped revolutionize computing. Today, we are developing a range of integrated products that will again transform how people work, learn, communicate, and are entertained. We are totally focused on our mission of enabling people and businesses throughout the world to realize their full potential. We deeply appreciate your support for our efforts.





Management’s Discussion and Analysis of Financial Condition and Results of Operations 

 

Results of Operations for 2001, 2002, and 2003 

 

Management’s Discussion and Analysis (MD&A) contains 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 discussed in “Issues and Uncertainties” and elsewhere in this report.



REVENUE 

 

Our revenue growth rate was 10% in fiscal 2001, 12% in fiscal 2002, and 13% in fiscal 2003. Revenue growth in fiscal 2003 was driven primarily by multi-year licensing that occurred before the transition to our new licensing program (Licensing 6.0) in the first quarter of fiscal 2003. Prior to the July 31, 2002 transition date to Licensing 6.0, we experienced significant growth in multi-year licensing arrangements as customers enrolled in our maintenance programs, including Upgrade Advantage and Software Assurance. The revenue growth also reflected a $933 million or 13% increase associated with OEM licensing of Microsoft Windows operating systems and a $309 million or 23% increase in revenue from Microsoft Xbox video game consoles. Revenue growth in fiscal 2002 was led by the addition of $1.35 billion of Xbox video game system revenue and $1.20 billion of revenue growth from Microsoft Windows XP Professional and Home operating systems. Revenue growth in fiscal 2001 was driven primarily by licensing of Microsoft Windows 2000 Professional with $1.01 billion growth in revenue from Professional operating systems, and Server and Tools revenue growth of $852 million. 

During the second quarter of fiscal 2002, we launched a new licensing program, Licensing 6.0, for volume licensing customers. Licensing 6.0 simplifies and improves our volume licensing program with Software Assurance, which gives customers the right to install any new release of products covered in the licensing agreement during the term of their coverage. The level of customer adoption of our new