Why did Microsoft change its presentation of foreign currency gains and losses?

Microsoft changed its presentation because it believes the new method better reflects how the company manages its foreign currency exposures, treating these gains and losses as incidental to its core operations.

What historical financial information has been recast?

Microsoft has provided recast financial information impacting its Annual Reports on Form 10-K for the fiscal years ended June 30, 2004, through June 30, 2008. This includes selected financial data, management's discussion and analysis, and financial statements.

How will this change impact Microsoft's reported profitability?

The change in presentation reclassifies where foreign currency gains and losses appear on the income statement, moving them from operating expenses to other income. While the net income for past periods might remain the same after recasting, the operating income and gross profit figures will be affected by removing these amounts from sales and marketing expenses. Investors should review the recast financial statements to understand the specific impact on different line items.

MSFT 8-K SEC Disclosure

Q: What is the main purpose of this 8-K filing?

The primary purpose of this filing is to inform investors about a change in Microsoft's accounting presentation for foreign currency remeasurement gains and losses. These items are now reported under 'other income, net' instead of being included within 'sales and marketing expense'.

Summary

This Form 8-K filing from Microsoft Corporation, filed on November 20, 2008, primarily serves to provide additional information regarding a change in the company's financial reporting for foreign currency remeasurement gains and losses. Effective July 1, 2008, Microsoft has elected to present these gains and losses as a component of 'other income, net,' rather than as part of 'sales and marketing expense.' This change is intended to better align the presentation with how Microsoft manages its foreign currency exposures, classifying these gains and losses as incidental to its core operations. In conjunction with this change, Microsoft is also providing recast financial information for its fiscal year ended June 30, 2008, as well as for the fiscal years ended June 30, 2004 through 2007. This restatement impacts selected financial data, management's discussion and analysis, and financial statements. Investors should note the specific amounts of foreign currency remeasurement gains and losses that have been reclassified over these periods, which show a net gain for most recent years presented.

Key Highlights

1Microsoft has changed its accounting presentation for foreign currency remeasurement gains and losses, moving them from 'sales and marketing expense' to 'other income, net' effective July 1, 2008.
2This change aims to better reflect how the company manages its foreign currency exposures.
3Recast financial information for fiscal years 2004-2008 is being provided to reflect this presentation change.
4For the fiscal year ended June 30, 2008, Microsoft reported a $221 million gain from foreign currency remeasurements under the new presentation.
5The fiscal years ended June 30, 2007, and June 30, 2006, also showed gains of $86 million and $92 million, respectively, from foreign currency remeasurements.
6The fiscal years ended June 30, 2005, and June 30, 2004, showed losses of $15 million and $74 million, respectively, from foreign currency remeasurements.
7This 8-K is filed in conjunction with a Form S-3 registration statement for potential debt offerings.

MICROSOFT CORP 8-K Report, Corporate Update (Nov 20, 2008)

Summary

Key Highlights

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