Microsoft 2007 Annual Report Download - page 46

PAGE 45
The maturities of debt securities, including fixed-maturity securities, at June 30, 2007 were as follows:
(In millions) Cost basis
Estimated fai
r
value
Due in one year or less $ 5,519 $ 5,518
Due after one year through five years 6,886 6,849
Due after five years through ten years 2,935 2,890
Due after ten years 4,910 4,853
Total $20,250 $20,110
NOTE 4 INVESTMENT INCOME AND OTHER
The components of investment income and other were as follows:
(In millions)
Y
ear Ended June 30 2007 2006 2005
Dividends and interest $1,319 $1,510 $1,460
Net gains on investments 650 161 856
Net losses on derivatives (358) (99) (262)
Income/(losses) from equity investees and other (34) 218 13
Investment income and other $1,577 $1,790 $2,067
Net gains on investments include other-than-temporary impairments. These were not material in fiscal year 2007,
were $408 million in fiscal year 2006, and were $152 million in fiscal year 2005. The decrease in other-than-
temporary impairments in fiscal year 2007 and the increase in fiscal year 2006 were driven by planned sales of
certain investments in an unrealized loss position in order to raise funds for the $20 billion tender offer announced
on July 20, 2006. Realized gains and losses from sales of available-for-sale securities (excluding other-than-
temporary impairments) were $851 million and $176 million, respectively, in fiscal year 2007, $1.11 billion and
$531 million, respectively, in fiscal year 2006, and $1.38 billion and $376 million, respectively, in fiscal year 2005.
NOTE 5 DERIVATIVES
For derivative instruments designated as hedges, hedge ineffectiveness, determined in accordance with SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, did not have a significant impact on
earnings for fiscal years 2007, 2006, or 2005. During fiscal year 2007, $219 million in gains on fair value hedges
from changes in time value and $361 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 2006, $217 million in gains on fair value hedges from changes in time value and $399 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 2007, $168 million of derivative gains were
reclassified to revenue. During fiscal year 2006, $166 million of derivative gains were reclassified to revenue and
$23 million in derivative gains 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 $124 million of net derivative gains included in OCI will be reclassified into earnings within the
next 12 months. No significant amounts of gains or losses were reclassified from OCI into earnings as a result of
forecasted transactions that failed to occur for fiscal years 2007, 2006, and 2005.