Microsoft Aligns Financials

Microsoft hopes its next release earnings release this week will go over better than the last
one. The software giant, which is set to announce fourth quarter results on Thursday after the market closes, has announced changes to its financial reporting structure.

The changes reflect organizational changes it has already announced, and are designed to better demonstrate the financial impact of its management strategy.

Beginning in fiscal year 2007, the company will report its financial performance based on five operating segments: Client, Server and Tools, Online Services Group, Microsoft Business Division, and Microsoft Entertainment and Devices Division.

The announcement also further aligns the company around three operating divisions — Microsoft Platforms and Services Division, Microsoft Business Division, and Microsoft Entertainment and Devices Division — previously created to achieve greater agility in managing future growth and execute on Microsoft’s software-based services strategy.

The Microsoft Platforms and Services Division includes the operating segments of Client, Server and Tools, and the Online Services Group. The Online Services Group includes MSN(R) as well as Windows Live.

The company will continue to report results for each of these three segments, which is consistent with the way they are managed and reported within Microsoft.

The Microsoft Business Division includes the Information Worker and Microsoft Business Solutions businesses. These businesses have been merged and the financial results for these two businesses will be presented as one operating segment.

The Microsoft Entertainment and Devices Division includes the Home and Entertainment and Mobile and Embedded Devices businesses. These businesses have been merged and the financial results for these two businesses will be presented as one operating segment.

The company also previously announced the formation of the Unified Communications Group within the Microsoft Business Division, which includes the Exchange Server business. Financial results in fiscal year 2007 for the Exchange Server business, as well as certain client access licenses related to products residing in the Microsoft Business Division, will be included as part of the results in the Microsoft Business Division segment. Previously, the financial results for these products and licenses had been included in the Server and Tools segment.

The company will announce financial results for its fiscal fourth quarter on July 20, 2006 for the seven business segments under which the company operated in fiscal year 2006, and will provide fiscal year 2007 guidance under the new operating segment structure.