Microsoft 2005 Annual Report Download - page 48

PAGE 47
Common and preferred stock and other investments that are restricted for more than one year or are not publicly traded are
recorded at cost. At June 30, 2004 the recorded basis of these investments was $1.65 billion, and their estimated fair value
was $2.12 billion. At June 30, 2005 the recorded basis of these investments was $1.05 billion, and their estimated fair value
was $1.27 billion. The estimate of fair value is based on publicly available market information or other estimates determined by
management.
The maturities of debt securities at June 30, 2005 were as follows:
(In millions) Cost basis
Estimated fair
value
Due in one year or less $ 6,648 $ 6,647
Due after one year through five years 16,972 16,960
Due after five years through ten years 7,584 7,771
Due after ten years 3,259 3,307
Total $34,463 $34,685
Debt securities include fixed maturity securities.
NOTE 4 INVESTMENT INCOME AND OTHER
The components of investment income and other are as follows:
(In millions)
Y
ear Ended June 30 2003 2004 2005
Dividends and interest $1,957 $1,892 $1,460
Net gains on investments 44 1,563 856
Net losses on derivatives (424) (268) (262)
Income/(losses) from equit
y
investees and other (68) (25) 13
Investment income and other $1,509 $3,162 $2,067
Net gains on investments include other-than-temporary impairments of $1.15 billion in fiscal year 2003, $82 million in fiscal
year 2004, and $152 million in fiscal year 2005. Realized gains and (losses) from sales of available-for-sale securities
(excluding other-than-temporary impairments) were $1.44 billion and $(245) million in fiscal year 2003, $2.16 billion and
$(518) million in fiscal year 2004, and $1.38 billion and $(376) million in fiscal year 2005.
NOTE 5 DERIVATIVES
For derivative instruments designated as hedges, hedge ineffectiveness, determined in accordance with SFAS No. 133, did not
have a significant impact on earnings for fiscal years 2003, 2004, and 2005. During fiscal year 2003, $74 million in losses on
fair value hedges from changes in time value and $229 million in losses on cash flow hedges from changes in time value were
excluded from the assessment of hedge effectiveness and included in investment income and other. During fiscal year 2004,
$31 million in gains on fair value hedges from changes in time value and $325 million in losses on cash flow hedges from
changes in time value were excluded from the assessment of hedge effectiveness and included in investment income and
other. During fiscal year 2005, $79 million in gains on fair value hedges from changes in time value and $116 million in losses
on cash flow hedges from changes in time value were excluded from the assessment of hedge effectiveness and included in
investment income and other.
Derivative gains and losses included in OCI are reclassified into earnings at the time forecasted revenue or the sale of an
equity investment is recognized. During fiscal year 2003, $40 million of derivative gains were reclassified to revenue and $2
million in derivative gains were reclassified to investment income and other. During fiscal year 2004, $14 million of derivative
gains were reclassified to revenue and no derivative gains or losses were reclassified to investment income and other. During
fiscal year 2005, $57 million of derivative gains were reclassified to revenue and $33 million in derivative gains were
reclassified to investment income and other.
We estimate that $42 million of net derivative gains included in OCI will be reclassified into earnings within the next twelve
months. No significant fair value hedges or cash flow hedges were derecognized or discontinued for fiscal years 2003, 2004,
and 2005.