Microsoft 2011 Annual Report Download - page 53

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Less than 12 Months 12 Months or Greater Total Total
Common and preferred stock 2,102 (339) 190 (79) 2,292 (418)
Total $ 3,613 $ (360) $ 297 $ (85) $ 3,910 $ (445)
Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Unrealized
losses from domestic and international equities are due to market price movements. Management does not
believe any remaining unrealized losses represent other-than-temporary impairments based on our evaluation of
available evidence as of June 30, 2011.
At June 30, 2011 and 2010, the recorded bases and estimated fair values of common and preferred stock and
other investments that are restricted for more than one year or are not publicly traded were $334 million and $216
million, respectively.
Debt Investment Maturities
(In millions) Cost Basis
Estimated
Fair Value
June 30, 2011
Due in one year or less $ 23,982 $ 24,053
Due after one year through five years 19,516 19,733
Due after five years through 10 years 2,516 2,637
Due after 10 years 2,811 2,945
Total $ 48,825 $ 49,368
NOTE 5 — DERIVATIVES
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. Our objectives for holding
derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as
effectively as possible. Our derivative programs include strategies that both qualify and do not qualify for hedge
accounting treatment. All notional amounts presented below are measured in U.S. currency equivalents.
Foreign Currency
Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our
foreign currency exposures daily to maximize the economic effectiveness of our foreign currency hedge positions.
Option and forward contracts are used to hedge a portion of forecasted international revenue for up to three years
in the future and are designated as cash-flow hedging instruments. Principal currencies hedged include the euro,
Japanese yen, British pound, and Canadian dollar. As of June 30, 2011 and 2010, the total notional amounts of
these foreign exchange contracts sold were $10.6 billion and $9.3 billion, respectively. Foreign currency risks
related to certain non-U.S. dollar denominated securities are hedged using foreign exchange forward contracts
that are designated as fair-value hedging instruments. As of June 30, 2011 and 2010, the total notional amounts
of these foreign exchange contracts sold were $572 million and $523 million, respectively. Certain options and
forwards not designated as hedging instruments are also used to manage the variability in exchange rates on
accounts receivable, cash, and intercompany positions, and to manage other foreign currency exposures. As of
June 30, 2011, the total notional amounts of these foreign exchange contracts purchased and sold were $3.9
billion and $7.3 billion, respectively. As of June 30, 2010, the total notional amounts of these foreign exchange
contracts purchased and sold were $7.8 billion and $5.3 billion, respectively.
Equity
Securities held in our equity and other investments portfolio are subject to market price risk. Market price risk is
managed relative to broad-based global and domestic equity indices using certain convertible preferred
investments, options, futures, and swap contracts not designated as hedging instruments. From time to time, to
hedge our price risk, we may use and designate equity derivatives as hedging instruments, including puts, calls,
swaps, and forwards. As of June 30, 2011, the total notional amounts of designated and non-designated equity
contracts purchased and sold were $1.4 billion and $935 million, respectively. As of June 30, 2010, the total
notional amounts of designated and non-designated equity contracts purchased and sold were $918 million and
$472 million, respectively.