Sony 2004 Annual Report Download - page 77

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alized losses relate to investments held by Sony
Life. Sony Life principally invests in debt securi-
ties in various industries. Almost all of these
securities were rated “BBB” or better by Stan-
dard and Poor’s Rating Services (“S&P”),
Moody’s Investors Services, Inc. (“Moody’s”) or
others. As of March 31, 2004, Sony Life had
debt and equity securities which had gross un-
realized losses of 1.8 billion yen and 0.1 billion
yen, respectively. Of the unrealized loss
amounts recorded by Sony Life, less than 1
percent relate to securities being in an unreal-
ized loss position of greater than 12 months.
These unrealized losses related to numerous
investments, with no single investment being
in a material unrealized loss position. In addi-
tion, there was no individual security with un-
realized losses that met the test discussed
above for impairment as the declines in value
were observed to be small both in amounts
and percentage, and therefore, the decline in
value for those investments was still deter-
mined to be temporary in nature. The percent-
age of noninvestment grade securities held by
Sony Life represents approximately 3 percent
of Sony Life’s total investment portfolio, while
the percentage of unrealized losses that relate
to those noninvestment grade securities was
approximately 7 percent of Sony Life’s total
unrealized losses as of March 31, 2004.
For fixed maturity securities with unrecog-
nized losses held by Sony Life as of March 31,
2004 (1.8 billion yen), maturity dates vary as
follows:
■ Within 1 year: 9 percent
■ 1 to 5 years: 54 percent
■ 5 to 10 years: 37 percent
Sony also maintains long-term investment
securities issued by a number of non-public
companies. The aggregate carrying amount of
the investments in non-public companies at
March 31, 2004, which were valued at the lower
of cost or fair value, was 51.4 billion yen.
For the years ended March 31, 2002, 2003
and 2004, total impairment losses were 27.6
billion yen, 25.5 billion yen and 16.7 billion
yen of which 9.2 billion yen, 2.3 billion yen
and 0.2 billion yen, respectively, were recorded
by Sony Life in Financial Services revenue (refer
to “Financial Services” under “Operating Per-
formance by Business Segment” for the fiscal
years ended March 31, 2004 and March 31,
2003). Impairment losses other than at Sony
Life in each of the three years were reflected in
non-operating expenses and primarily relate to
the certain strategic investments in non-finan-
cial services businesses. These investments
primarily relate to the certain strategic invest-
ments in Japan, the U.S. and Europe with
which Sony has strategic relationships for the
purposes of developing and marketing new
technologies. The impairment losses were
recorded for each of the three years as these
companies failed to successfully develop and
market such technology, the operating perfor-
mance of the companies was more unfavor-
able than previously expected and the decline
in fair value of these companies was judged as
other-than-temporary. None of these impair-
ment losses was individually material to Sony,
except for the devaluation of securities ex-
plained in “Other Income and Expenses” for
the fiscal years ended March 31, 2004, March
31, 2003, and March 31, 2002, except for the
devaluation of securities in the cases of com-
panies such as Candescent Technologies
Corporation, a developer of flat-screen tech-
nology and Trimedia Technologies Inc., a
developer of microprocessor technologies.
Upon determination that the value of an
investment is impaired, the value of the invest-
ment is written down to its fair value. For pub-
licly traded investments, fair value is determined
by the closing stock price as of the date on
which the impairment determination is made.
For non-public investments, fair value is deter-
mined through the use of such methodologies
as discounted cash flows, valuation of recent
financings and comparable valuations of
similar companies. The impairment losses that
were recorded in each of the three years re-
lated to the unique facts and circumstances of
each individual investment and did not signifi-
cantly impact other investments.
Sony Life and Sony Bank’s investments con-
stitute the majority of the investments in the
Financial Services segment. Sony Life and Sony
Bank account for approximately 81 percent
and 17 percent of the investments of the
Financial Services segment, respectively.
Sony Life’s basic investment policy is to take
both expected returns and investment risks into
account in order to maintain sound asset
quality, structuring its asset management port-
folio to ensure steady medium- and long-term
returns by investing assets in an efficient
manner and responding flexibly to changes in
financial conditions and the investment
environment. Moreover, Sony Life analyzes the
character of future insurance policy benefits by
utilizing Asset Liability Management (“ALM”), a
method of managing interest rate fluctuation
risk through the comprehensive identification
of the mismatches of duration and cash flows
March 31, 2004
Unrealized Unrealized Fair market
(Yen in millions) Cost gain loss value
Financial Services Business:
Available for sale
Debt securities
Sony Life . . . . . . . . . . . . . . . . . . . . . . . 1,581,723 54,645 1,828 1,634,540
Other . . . . . . . . . . . . . . . . . . . . . . . . . 348,443 971 232 349,182
Equity securities
Sony Life . . . . . . . . . . . . . . . . . . . . . . . 33,694 16,398 149 49,943
Other . . . . . . . . . . . . . . . . . . . . . . . . . 2,384 4,365 0 6,749
Held to maturity
Debt securities
Sony Life . . . . . . . . . . . . . . . . . . . . . . . – – – –
Other . . . . . . . . . . . . . . . . . . . . . . . . . 26,437 381 28 26,790
Total Financial Services . . . . . . . . . . . . 1,992,681 76,760 2,237 2,067,204
Non-Financial Services:
Available for sale securities . . . . . . . . . . . . . 58,946 42,768 1,749 99,965
Held to maturity securities . . . . . . . . . . . . . 2 – – 2
Total Non-Financial Services . . . . . . . . 58,948 42,768 1,749 99,967
Consolidated . . . . . . . . . . . . . . . . . . . . . . . 2,051,629 119,528 3,986 2,167,171