Microsoft 2002 Annual Report Download - page 43

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MSFT 45 / 2002 FORM 10-K
Part II
Item 8
NOTE 10 DERIVATIVES
For fiscal 2001, investment income included a net unrealized loss of $592 million, comprised of a $214 million gain for changes in the time value of options
for fair value hedges, $211 million loss for changes in the time value of options for cash flow hedges, and $595 million loss for changes in the fair value of
derivative instruments not designated as hedging instruments. For fiscal 2002, investment income included a net unrealized loss of $480 million, comprised
of a $30 million gain for changes in the time value of options for fair value hedges, $331 million loss for changes in the time value of options for cash flow
hedges, and $179 million net loss for changes in the fair value of derivative instruments not designated as hedging instruments.
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 2001, $214 million of derivative gains were reclassified to revenue and $416 million of derivative losses were reclassified to
investment income/(loss). During fiscal 2002, $234 million of derivative gains were reclassified to revenue and $10 million of derivative losses were
reclassified to investment income/(loss). The derivative losses reclassified to investment income/(loss) were offset by gains on the item being hedged. The
Company estimates that $63 million of net derivative gains included in other comprehensive income will be reclassified into earnings within the next twelve
months.
For instruments designated as hedges, hedge ineffectiveness, determined in accordance with SFAS 133, had no impact on earnings for the fiscal 2001
and 2002. No fair value hedges or cash flow hedges were derecognized or discontinued for fiscal 2001 and 2002.
NOTE 11 INVESTMENT INCOME/(LOSS)
The components of investment income/(loss) are as follows:
In millions
Y
ear Ended June 30 2000 2001 2002
Dividends $ 363
$ 377 $357
Interest 1,231
1,808 1,762
Net recognized gains/(losses) on investments:
Net gains on the sales of investments 1,780
3,175 2,379
Other-than-temporary impairments (29)
(4,804) (4,323)
Net unrealized losses attributable to derivative instruments (19)
(592) (480)
Net recognized gains/(losses) on investments 1,732
(2,221) (2,424)
Investment income/(loss) $ 3,326
$ (36) $(305)
NOTE 12 INCOME TAXES
The provision for income taxes consisted of:
In millions
Y
ear Ended June 30 2000 2001 2002
Current taxes:
U.S. and state $ 4,744
$ 3,243 $3,644
International 535
514 575
Current taxes 5,279
3,757 4,219
Deferred taxes (425)
47 (535)
Provision for income taxes $ 4,854
$ 3,804 $3,684
U.S. and international components of income before income taxes were:
In millions
Y
ear Ended June 30 2000 2001 2002
U.S. $ 11,860 $ 9,189 $8,920
International 2,415 2,336 2,593
Income before income taxes $ 14,275 $ 11,525 $11,513