Sony 2003 Annual Report Download - page 192

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Consolidated Financial Information 2003
- 106 -
Fair value hedges
The derivatives designated as fair value hedges include interest rate and currency swap agreements.
Both the derivatives designated as fair value hedge and hedged items are reflected at fair value in the
consolidated balance sheet. Changes in the fair value of the derivatives designated as fair value hedge as
well as offsetting changes in the carrying value of the underlying hedged items are recognized in income
currently.
The amount of ineffectiveness of these fair value hedges, that was reflected in earnings, was not
material for the years ended March 31, 2002 and 2003. In addition, there were no amounts excluded from
the assessment of hedge effectiveness of fair value hedges.
Cash flow hedges
The derivatives designated as cash flow hedges include foreign exchange forward contracts, foreign
currency option contracts and interest rate and currency swap agreements.
Changes in the fair value of derivatives designated as cash flow hedges are initially recorded in other
comprehensive income and reclassified into earnings when the hedged transaction affects earnings.
For the years ended March 31, 2002 and 2003, these cash flow hedges were fully effective. In addition,
there were no amounts excluded from the assessment of hedge effectiveness of cash flow hedges. At
March 31, 2003, amounts related to derivatives qualifying as cash flow hedges amounted to a reduction of
equity of ¥4,793 million ($40 million), of which ¥2,213 million ($18 million) is expected to be reclassified into
earnings within the next twelve months. For the year ended March 31, 2003, there were no forecasted
transactions that failed to occur which resulted in the discontinuance of cash flow hedges.
Derivatives not designated as hedges
The derivatives not designated as hedges under FAS No. 133 include foreign exchange forward contracts,
foreign currency option contracts, interest rate and currency swap agreements, convertible rights included
in convertible bonds and other.
Changes in the fair value of derivatives not designated as hedges are recognized in income currently.
A description of the purpose and classification of the derivative financial instruments held by Sony follows:
Foreign exchange forward contracts and foreign currency option contracts
Sony enters into foreign exchange forward contracts and purchased and written foreign currency option
contracts primarily to fix the cash flows from intercompany accounts receivable and payable and
forecasted transactions denominated in functional currencies (Japanese yen, U.S. dollars and euros) of
Sony’s major operating units. The majority of written foreign currency option contracts are a part of range
forward contract arrangements and expire in the same month with the corresponding purchased foreign
currency option contracts.
Since July 1, 2002, certain foreign currency option contracts have been designated as hedges of