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NOTE 5    DERIVATIVES

For derivative instruments designated as hedges, hedge ineffectiveness, determined in accordance with SFAS 133, did not have a significant impact on earnings for fiscal 2002, 2003, and 2004. During fiscal 2002, $30 million in gains on fair value hedges from changes in time value and $331 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/(loss). During fiscal 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/(loss). During fiscal 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/(loss).

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 2002, $234 million of derivative gains were reclassified to revenue and $10 million in derivative losses were reclassified to investment income/(loss). During fiscal 2003, $40 million of derivative gains were reclassified to revenue and $2 million in derivative gains were reclassified to investment income/(loss). During fiscal 2004, $14 million of derivative gains were reclassified to revenue and no derivative gains or losses were reclassified to investment income/(loss).

We estimate that $119 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 2002, 2003, and 2004.

 

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