Enterprise Risk Management at Microsoft

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Excerpts Contd...

Overview of Risks Contd...

Intellectual Property Risks Unlicensed copying and use of software represented a significant loss of revenue to Microsoft especially in developing countries. While this adversely affected U.S. revenues, revenue loss was even more significant outside the United States, particularly in developing countries where intellectual property laws were less stringent. Throughout the world, Microsoft actively educated consumers on the benefits of licensing genuine products and educated lawmakers on the advantages of creating a business climate where intellectual property rights were adequately protected...

Regulatory Risks

Microsoft was a beneficiary of the R&D tax credit given by the U.S. government. The current R&D tax credit was assured until 2004. However, there was no assurance that it would continue thereafter. Microsoft had attempted to mitigate this risk by having more research centers outside USA. But by and large, Microsoft's R&D activities remained highly concentrated in the US...

Financial Risks
Microsoft was exposed to foreign currency, interest rate, and equity price risks. Microsoft hedged its foreign currency receivables and a portion of anticipated foreign currency revenues, primarily with option contracts. Microsoft monitored its foreign currency exposures on a daily basis to maximize the overall effectiveness of its foreign currency hedge positions. Principal currencies hedged, were the Euro, Japanese yen, British pound, and Canadian dollar...

Exhibit I: Microsoft Business Segment Information
Exhibit II: Microsoft Software Segment Information
Exhibit III: Microsoft Value at Risk Information
Exhibit IV: Microsoft Financial Highlights
Exhibit V: Microsoft Income Statements
Exhibit VI: Microsoft Balance Sheet Statements
Exhibit VII: Microsoft Cash Flows Statements