Microsoft 2009 Annual Report Download - page 52

PAGE 52
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At June 30, 2009, unrealized losses of $285 million consisted of: $79 million related to investment grade fixed-
income securities, $24 million related to investments in high yield and emerging market fixed-income securities,
$110 million related to domestic equity securities, and $72 million related to international equity securities. At
June 30, 2008, unrealized losses of $255 million consisted of: $121 million related to investment grade fixed-income
securities, $21 million related to investments in high yield and emerging market fixed-income securities, $99 million
related to domestic equity securities, and $14 million related to international equity securities. 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 unrealized losses
represent other-than-temporary impairments based on our evaluation of available evidence as of June 30, 2009.
At June 30, 2009, the recorded basis and estimated fair value of common and preferred stock and other
investments that are restricted for more than one year or are not publicly traded was $204 million. At June 30, 2008,
the recorded basis and estimated fair value of these investments was $289 million. The estimate of fair value is
based on publicly available market information or other estimates determined by management.
DEBT INVESTMENT MATURITIES
(In millions) Cost Basis
Estimated Fair
Value
Due in one year or less $ 8,487
$ 6,750
Due after one year through five years 9,796
10,071
Due after five years through ten years 1,212
1,248
Due after ten years 2,759
2,819
Total $22,254
$20,888
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 under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
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. Options
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, 2009, the total notional amount of such foreign
exchange contracts was $7.2 billion. 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, 2009, the total notional amount of these foreign exchange contracts sold was $3.5 billion. 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, 2009, the total notional amounts of these foreign exchange contracts purchased and sold were $3.2 billion
and $3.6 billion, respectively.