Microsoft 2014 Annual Report Download - page 57

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Commodity
We use broad-based commodity exposures to enhance portfolio returns and to facilitate portfolio diversification. We use
swaps, futures, and option contracts, not designated as hedging instruments, to generate and manage exposures to
broad-based commodity indices. We use derivatives on commodities as they can be low-cost alternatives to the purchase
and storage of a variety of commodities, including, but not limited to, precious metals, energy, and grain. As of June 30,
2014, the total notional amounts of commodity contracts purchased and sold were $1.4 billion and $408 million,
respectively. As of June 30, 2013, the total notional amounts of commodity contracts purchased and sold were $1.2 billion
and $249 million, respectively.
Credit-Risk-Related Contingent Features
Certain of our counterparty agreements for derivative instruments contain provisions that require our issued and
outstanding long-term unsecured debt to maintain an investment grade credit rating and require us to maintain minimum
liquidity of $1.0 billion. To the extent we fail to meet these requirements, we will be required to post collateral, similar to
the standard convention related to over-the-counter derivatives. As of June 30, 2014, our long-term unsecured debt rating
was AAA, and cash investments were in excess of $1.0 billion. As a result, no collateral was required to be posted.
Fair Values of Derivative Instruments
The following tables present the fair values of derivative instruments designated as hedging instruments
(“designated hedge derivatives”) and not designated as hedging instruments (“non-designated hedge derivatives”). The
fair values exclude the impact of netting derivative assets and liabilities when a legally enforceable master netting
agreement exists and fair value adjustments related to our own credit risk and counterparty credit risk:
June 30, 2014 June 30, 2013
A
ssets Liabilities
A
ssets Liabilities
(In millions) Short-term
Investments
Other
Current
Assets
Equit
y
and
Other
Investments
Other
Current
Liabilities
Short-term
Investments
Other
Current
Assets
Other
Current
Liabilities
Non-designated Hedge Derivatives
Foreign exchange contracts $ 10 $ 39 $ 0 $ (97) $ 41 $ 87 $ (63)
Equity contracts 177 0 0 (21) 157 0 (9)
Interest rate contracts 17 0 0 (12) 18 0 (45)
Credit contracts 24 0 0 (13) 19 0 (17)
Commodity contracts 15 0 0 (1) 3 0 (1)
Total $ 243 $ 39 $ 0 $ (144) $ 238 $ 87 $ (135)
Designated Hedge Derivatives
Foreign exchange contracts $ 1 $ 70 $ 0 $ (15) $ 9 $ 167 $ 0
Equity contracts 0 0 7 (125) 0 0 0
Total $ 1 $ 70 $ 7 $ (140) $ 9 $ 167 $ 0
Total gross amounts of
derivatives $ 244 $ 109 $ 7 $ (284) $ 247 $ 254 $ (135)
Gross derivatives either offset or
subject to an enforceable
master netting agreement $ 99 $ 109 $ 7 $ (284) $ 105 $ 254 $ (97)
Gross amounts offset in the
balance sheet (77) (71) (7) 155 (72) (9
)
80
Net amounts presented in the
balance sheet $ 22 $ 38 $ 0 $ (129) $ 33 $ 245 $ (17)
Gross amounts not offset in
the balance sheet 0 0 0 0 0 0 0
Net amount $ 22 $ 38 $ 0 $ (129) $ 33 $ 245 $ (17)
See also Note 4 – Investments and Note 6 – Fair Value Measurements.