Sony 2006 Annual Report Download - page 114

112
Yen in millions
2005 2006
Notional Carrying Estimated Notional Carrying Estimated
March 31 amount amount fair value amount amount fair value
Long-term debt including the current portion . . . . . . . . . . . . . . . . —¥(845,862) ¥(856,321) —¥(958,453) ¥(981,006)
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . ¥1,545,814 (55) (55) ¥1,489,213 1,184 1,184
Currency option contracts purchased . . . . . . . . . . . . . . . . . . . . . 428,261 1,646 1,646 457,380 2,540 2,540
Currency option contracts written . . . . . . . . . . . . . . . . . . . . . . . . 146,506 (3,390) (3,390) 163,746 (2,576) (2,576)
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,024 (2,968) (2,968) 172,430 (165) (165)
Interest rate and currency swap agreements . . . . . . . . . . . . . . . . 29,843 (1,318) (1,318) 14,518 (488) (488)
Interest rate future contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,470 (92) (92) ———
Bond future contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,225 45 45 13,934 111 111
Stock price index option purchased . . . . . . . . . . . . . . . . . . . . . . . ———26,650 40 40
Embedded derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405,756 11,894 11,894 411,252 70,712 70,712
Dollars in millions
2006
Notional Carrying Estimated
March 31 amount amount fair value
Long-term debt including the current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —$(8,192) $(8,385)
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,728 10 10
Currency option contracts purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,909 22 22
Currency option contracts written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400 (22) (22)
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,473 (1) (1)
Interest rate and currency swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 (4) (4)
Interest rate future contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ———
Bond future contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 1 1
Stock price index option purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 0 0
Embedded derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,515 604 604
Embedded derivatives
Changes in the fair value of embedded derivatives that must be
separated from the host contracts and accounted for as deriva-
tive instruments under FAS No. 133 are recognized in income.
For example, the convertible rights included in convertible bonds
held by Sony’s life insurance subsidiary, which are classified as
available-for-sale debt securities, are considered embedded
derivatives and are marked-to-market with changes in value
recognized in financial service revenue.
(2) Fair value of financial instruments:
The estimated fair values of Sony’s financial instruments are
summarized as follows. The following summary excludes cash
and cash equivalents, time deposits, notes and accounts receiv-
able, trade, short-term borrowings, notes and accounts payable,
trade and deposits from customers in the banking business that
are carried at amounts which approximate fair value. The sum-
mary also excludes debt and equity securities which are
disclosed in Note 8.
The following are explanatory notes regarding the estimation
method of fair values in the above table.
Long-term debt including the current portion
The fair values of long-term debt, including the current portion,
were estimated based on either the market value or the dis-
counted amounts of future cash flows using Sony’s current
incremental debt rates for similar liabilities.
Derivative financial instruments
The fair values of foreign exchange forward contracts and
foreign currency option contracts were estimated based on
market quotations. The fair values of interest rate and currency
swap agreements were estimated based on the discounted
amounts of future net cash flows. The fair values of convertible
rights, which were a majority of embedded derivatives, were
estimated based on the market price of stock which will be
acquired by the exercise of these rights.
15. Pension and severance plans
Upon terminating employment, employees of Sony Corporation
and its subsidiaries in Japan are entitled, under most circum-
stances, to lump-sum indemnities or pension payments as
described below. For employees voluntarily retiring, payments
are determined based on current rates of pay and lengths of
service. In calculating the payments for employees involuntarily
retiring, including employees retiring due to meeting mandatory
retirement age requirements, Sony may grant additional benefits.
In July, 2004, Sony Corporation and certain of its subsidiaries
amended their pension plans and introduced a point-based plan
under which a point is added every year reflecting the individual
employee’s performance over that year. Under the point-based