Sony 2006 Annual Report Download - page 66

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The percentage of non-investment grade securities held by Sony
Life represents approximately 1% of Sony Life’s total investment
portfolio, while the percentage of unrealized losses that relate to
those non-investment grade securities was approximately 2% of
Sony Life’s total unrealized losses as of March 31, 2006.
For fixed maturity securities with unrecognized losses held by
Sony Life as of March 31, 2006 (¥15.1 billion), maturity dates
vary as follows:
■ Within 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
■ 1 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44%
■ 5 to 10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50%
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,
2006 was ¥59.6 billion. 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, the impairment of the investment is
recognized and the carrying value is reduced to its fair value.
For the fiscal years ended March 31, 2004, 2005 and 2006,
total impairment losses were ¥16.7 billion, ¥4.2 billion and ¥4.0
billion of which ¥0.2 billion, ¥0.5 billion and ¥0.2 billion, respec-
tively, 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, 2006
and March 31, 2005). 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 invest-
ments 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 were
individually material to Sony, except for the devaluation of
securities explained in “Other Income and Expenses” for the
fiscal years ended March 31, 2004.
Upon determination that the value of an investment is
impaired, 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 impairment
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 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 82% and 16% of the
investments of the Financial Services segment, respectively.
Sony Life’s fundamental investment policy is to build an
investment portfolio capable of ensuring stable mid- to long-
term returns through the efficient investment of funds, taking into
account both expected returns and investment risks and
responding flexibly to changes in financial conditions and the
investment environment, while maintaining a sound asset base.
Moreover, as its fundamental stance towards Asset Liability
Management (“ALM”), a method of managing interest rate
fluctuation risk through the comprehensive identification of
differences in duration and cash flows between assets and
liabilities, Sony Life takes the distinct characteristics of liability
into account in order to control price fluctuation risks and
establish a portfolio that ensures a certain level of returns. Sony
Life adjusts its investing style depending on changes in the
investment environment, in the first half of the fiscal year ended
March 31, 2006, when stock prices in Japan remained low,
Sony Life invested mainly in convertible bonds, while in the
second half of the fiscal year ended March 31, 2006, when
interest rates in Japan started to trend upward, Sony Life
invested mainly in long-term Japanese government bonds.
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.