Microsoft 2011 Annual Report Download - page 28

28
Fiscal year 2010 compared with fiscal year 2009
General and administrative expenses increased due to increased legal charges, as discussed above within
Corporate-Level Activity, and transition expenses associated with the inception of the Yahoo! Commercial
Agreement. These increases were offset in part by a 6% reduction in headcount-related expenses and lower
severance costs. During fiscal years 2010 and 2009, general and administrative expenses included employee
severance expense of $59 million and $330 million, respectively, associated with a resource management
program that was announced in January 2009 and completed in fiscal year 2010.
OTHER INCOME (EXPENSE) AND INCOME TAXES
Other Income (Expense)
The components of other income (expense) were as follows:
(In millions)
Y
ear Ended June 30, 2011 2010 2009
Dividends and interest income $ 900 $ 843 $ 744
Interest expense (295) (151) (38)
Net recognized gains (losses) on investments 439
348 (125)
Net losses on derivatives (77) (140) (558)
Net gains (losses) on foreign currency remeasurements (26) 1 (509)
Other (31) 14 (56)
Total $ 910 $ 915 $ (542)
We use derivative instruments to manage risks related to foreign currencies, equity prices, interest rates, and
credit; to enhance investment returns; and to facilitate portfolio diversification. Gains and losses from changes in
fair values of derivatives that are not designated as hedges are recognized in other income (expense). These are
generally offset by unrealized gains and losses in the underlying securities in the investment portfolio and are
recorded as a component of other comprehensive income.
Fiscal year 2011 compared with fiscal year 2010
Dividends and interest income increased due to higher average portfolio investment balances, offset in part by
lower yields on our fixed-income investments. Interest expense increased due to our increased issuance of debt.
Net recognized gains on investments increased due primarily to higher gains on sales of equity securities, offset
in part by fewer gains on sales of fixed-income securities. Derivative losses decreased due primarily to higher
gains on commodity derivatives offset in part by higher losses on currency contracts used to hedge foreign
currency revenue.
Fiscal year 2010 compared with fiscal year 2009
Dividends and interest income increased primarily due to higher average portfolio investment balances, offset in
part by lower yields on our fixed-income investments. Interest expense increased due to our issuance of long term
debt in May 2009. Net recognized gains on investments increased primarily due to lower other-than-temporary
impairments, offset in part by lower gains on sales of investments in the current period. Other-than-temporary
impairments were $69 million during fiscal year 2010, as compared with $862 million during fiscal year 2009 and
decreased primarily due to improvements in market conditions. Net losses on derivatives decreased due to gains
on equity and interest rate derivatives as compared to losses in the prior period and lower losses on commodity
and foreign currency contracts in the current period. Net gains from foreign currency remeasurements were
insignificant in fiscal year 2010 compared to net losses of $509 million in the prior year, which had resulted from
the strengthening of the U.S. dollar in the prior year. For fiscal year 2010, other includes a gain on the divestiture
of Razorfish.