Sony 1998 Annual Report Download - page 63

Annual Report 1998 Sony Corporation [61]
On March 4, 1998, the company issued unsecured U.S. $1.5 billion Notes due 2003 denominated in U.S. dollars
with an interest rate of 6.125%. The Notes are redeemable before the due date.
At March 31, 1998, 57,369 thousand shares of common stock would be issued upon conversion or exercise of all
convertible debentures and warrants outstanding.
At March 31, 1998, property, plant and equipment with a book value of ¥5,191 million ($39,326 thousand) is
mortgaged as security for loans and bonds issued by consolidated subsidiaries.
Aggregate amounts of annual maturities of long-term debt during the next five years are as follows:
Year ending March 31 Yen in millions Dollars in thousands
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 84,794 $ 642,378
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,053 765,553
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245,517 1,859,977
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,486 1,170,348
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224,114 1,697,833
The basic agreements with certain banks in Japan include provisions that collateral (including sums on deposit
with such banks) or guarantors will be furnished upon the banks’ request and that any collateral furnished, pursuant
to such agreements or otherwise, will be applicable to all present or future indebtedness to such banks.
11. Insurance-related operations
The company’s stock life insurance subsidiary maintains accounting records as noted in Note 2 in accordance with
the accounting principles and practices prescribed by the Japanese Ministry of Finance (the “MOF”), which vary in
some respects from U.S. GAAP. Those differences are mainly: that insurance acquisition costs are deferred and
amortized generally over the premium-paying period of the insurance policies, that future policy benefits calculated
locally under the authorization of the MOF are comprehensively adjusted to a net level premium method with certain
adjustments of actuarial assumptions and that deferred income taxes are not recognized under local accounting
practices. For purposes of preparing the consolidated financial statements, appropriate adjustments have been made
to reflect such items in accordance with U.S. GAAP.
The amounts of statutory net equity of the subsidiary as of March 31, 1997 and 1998 were ¥12,625 million and
¥40,625 million ($307,765 thousand), respectively.
Deferred insurance acquisition costs
Insurance acquisition costs to be deferred, such as commission expenses, medical examination and inspection report
fees, etc., vary with and are primarily related to acquiring new insurance policies and are amortized mainly over the
premium-paying period of the related insurance policies using assumptions consistent with those used in computing
policy reserves. Amortization charged to income for the years ended March 31, 1996, 1997 and 1998 amounted to
¥9,694 million, ¥15,855 million and ¥21,838 million ($165,439 thousand), respectively.
Future insurance policy benefits
Liabilities for future policy benefits are established in amounts adequate to meet the estimated future obligations of
policies in force. These liabilities are computed by the net level premium method based upon estimates as to future
investment yield, mortality and withdrawals. Future policy benefits are computed using interest rates ranging from
approximately 2.75% to 6.25%, generally graded down after 10 to 20 years. Mortality, morbidity and withdrawal
assumptions for all policies are based on either the life insurance subsidiary’s own experience or various actuarial
tables. At March 31, 1997 and 1998, future insurance policy benefits amounted to ¥528,204 million and ¥673,473
million ($5,102,068 thousand), respectively.
12. Financial instruments
The company has certain financial instruments including financial assets and liabilities and off-balance-sheet finan-
cial instruments incurred in the normal course of business. In applying a consistent risk management strategy, the
company manages the exposure to market rate movements of its financial assets and liabilities through the use of
derivative financial instruments which include foreign exchange forward contracts, foreign currency option con-
tracts, interest rate swap agreements and interest rate and currency swap agreements designated as hedges. These
instruments are executed with creditworthy financial institutions, and virtually all foreign currency contracts are
denominated in U.S. dollars, German marks and other currencies of major countries. Although the company may be
exposed to losses in the event of nonperformance by counterparties or interest and currency rate movements, it does
not anticipate significant losses due to the nature of its counterparties or the hedging arrangements.