NOTES TO FINANCIAL STATEMENTS
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 2008, 2007, or 2006. During fiscal year 2008, $274 million in gains on fair-value hedges from changes in time value and $324 million in losses on cash-flow hedges from changes in time value were excluded from the assessment of hedge effectiveness and were included in investment income and other. 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 were 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 were 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 underlying investment is recognized. During fiscal year 2008, $104 million of derivative gains were reclassified to revenue. 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.
We estimate that $111 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 2008, 2007, and 2006.
Derivative fair values are based on quoted market prices or pricing models using current market data. The fair values of all derivative positions were as follows:
| (In millions) | Short-term investments(1) | Other current assets | Equity and other investments(1) | Other current liabilities | Other long-term liabilities | Total |
|---|---|---|---|---|---|---|
| June 30, 2008 | ||||||
| Cash-flow hedges | $ – | $488 | $ –, | $ – , | $ – | $ ,488 |
| Fair-value hedges | (41) | – | 767 | (11) | – | 715 |
| Other derivatives | 69 | (34) | 4 | (20) | – | 19 |
| Total | $28 | $454 | $771 | $(31) | $ – | $1,222 |
| June 30, 2007 | ||||||
| Cash-flow hedges | $ , – | $258 | $ ,– | $ )– | $, – | $ 258 |
| Fair-value hedges | (11) | – | (29) | (340) | (22) | (402) |
| Other derivatives | 9 | (20) | (6) | (114) | – | (131) |
| Total | $(2) | $238 | $(35) | $(454) | $(22) | $(275) |
(1) The amounts presented as short-term investments and equity and other investments were classified as investments in our balance sheets and were included in the amounts presented in Note 4—Investments.