Sony 2005 Annual Report Download - page 56

Sony Corporation 53
ment portfolio, while the percentage of unrealized losses that
relate to those noninvestment grade securities was approxi-
mately 4 percent of Sony Life’s total unrealized losses as of
March 31, 2005.
For fixed maturity securities with unrecognized losses held by
Sony Life as of March 31, 2005 (2.1 billion yen), maturity dates
vary as follows:
■ Within 1 year . . . . . . . . . . . . . . . . . . . . . . . . . 18 percent
■ 1 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . 55 percent
■ 5 to 10 years . . . . . . . . . . . . . . . . . . . . . . . . . 21 percent
Sony also maintains long-term investment securities issued by
a number of non-public companies. The aggregate carrying
amount of these investments in non-public companies at March
31, 2005 was 48.9 billion yen. A non-public equity investment is
valued at cost as fair value is not readily determinable. If the
value is estimated to have declined and such decline is judged
to be other than temporary, impairment of the investment is
recognized and the carrying value is reduced to its fair value.
For the fiscal years ended March 31, 2003, 2004 and 2005,
total impairment losses were 25.5 billion yen, 16.7 billion yen
and 4.2 billion yen of which 2.3 billion yen, 0.2 billion yen and
0.5 billion yen, respectively, were recorded by Sony Life in
Financial Services revenue (Refer to “Financial Services” under
“Operating Performance by Business Segment” for the fiscal
years ended March 31, 2005 and March 31, 2004). Impairment
losses other than at Sony Life in each of the three fiscal years
were reflected in non-operating expenses and primarily relate to
the certain strategic investments in non-financial services
businesses. These investments primarily relate to the certain
strategic investments 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 fiscal years as these companies
failed to successfully develop and market such technology, the
operating performance of the companies was more unfavorable
than previously expected and the decline in fair value of these
companies was judged as other-than-temporary. None of these
impairment losses was individually material to Sony, except for
the devaluation of securities explained in “Other Income and
Expenses” for the fiscal years ended March 31, 2005, March 31,
2004 and March 31, 2003.
Upon determination that the value of an investment is im-
paired, the value of the investment is written down to its fair
value. For publicly traded investments, fair value is determined
by the closing stock price as of the date on which the impair-
ment determination is made. For non-public investments, fair
value is determined 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 fiscal years
related to the unique facts and circumstances of each individual
investment and did not significantly impact other investments.
Sony Life and Sony Bank’s investments constitute the majority
of the investments in the Financial Services segment. Sony Life
and Sony Bank account for approximately 84 percent and 14
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 portfolio
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. More-
over, 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 between assets and liabilities. Government bonds,
convertible bonds, and straight corporate bonds constitute a
majority of Sony Life’s current portfolio. Sony Life invests in
various types of bonds in many countries, companies and
industries, to diversify associated risks. Stocks accounted for
approximately 3 percent of the current portfolio.
Sony Bank operates using a similar basic investment policy as
Sony Life, taking expected returns and investment risks into
account in order to disperse associated risks, and structuring its
asset portfolio to ensure steady returns from investments. In
addition, Sony Bank is careful to match the duration of its asset
portfolio with the duration of liabilities resulting from customer
deposits, in order to ensure that significant discrepancies do not
occur. Government bonds and corporate bonds in yen or other
currencies constitute a majority of Sony Bank’s current portfolio.
To safeguard its assets Sony Bank does not invest in equity
securities but invests in various types of government and
corporate bonds in many countries, companies and industries,
to diversify associated risks. With respect to loans, Sony Bank
mainly offers housing loans to individuals and does not have any
corporate loan exposure.
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