Sony 2015 Annual Report Download - page 156

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
In accordance with accounting guidance for derivative instruments and hedging activities, various derivative
financial instruments held by Sony are classified and accounted for as described below.
Fair value hedges
Changes in the fair value of derivatives designated and effective as fair value hedges for recognized assets
or liabilities or unrecognized firm commitments are recognized in earnings as offsets to changes in the fair value
of the related hedged assets or liabilities.
Cash flow hedges
Changes in the fair value of derivatives designated and effective as cash flow hedges for forecasted
transactions or exposures associated with recognized assets or liabilities are initially recorded in other
comprehensive income and reclassified into earnings when the hedged transaction affects earnings. Changes in
the fair value of the ineffective portion are recognized immediately in earnings.
Derivatives not designated as hedges
Changes in the fair value of derivatives that are not designated as hedges are recognized immediately in
earnings.
Assessment of hedges
When applying hedge accounting, Sony formally documents all hedging relationships between the
derivatives designated as hedges and the hedged items, as well as its risk management objectives and strategies
for undertaking various hedging activities. Sony links all hedges that are designated as fair value or cash flow
hedges to specific assets or liabilities on the consolidated balance sheets or to the specific forecasted
transactions. Sony also assesses, both at the inception of the hedge and on an on-going basis, whether the
derivatives that are designated as hedges are highly effective in offsetting changes in fair value or cash flows of
hedged items. When it is determined that a derivative is not highly effective as a hedge, Sony discontinues hedge
accounting. Hedge ineffectiveness, if any, is included immediately in earnings.
Stock-based compensation -
Sony accounts for stock-based compensation using the fair value based method, measured on the date of
grant using the Black-Scholes option-pricing model. The expense is mainly included in selling, general and
administrative expenses. Stock-based compensation is recognized, net of an estimated forfeiture rate, over the
requisite service period using the accelerated method of amortization for grants with graded vesting. The
estimated forfeiture rate is based on Sony’s historical experience in the stock acquisition rights plans where the
majority of the vesting terms have been satisfied.
Revenue recognition -
Revenues from sales in the MC, G&NS, IP&S, HE&S, Devices and Music segments are recognized when
persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales
price is fixed or determinable, and collectability is reasonably assured. Delivery is considered to have occurred
when the customer has taken title to the product and the risks and rewards of ownership have been substantively
transferred. If the sales contract contains a customer acceptance provision, then sales are recognized after
customer acceptance occurs or the acceptance provisions lapse. Revenues are recognized net of anticipated
returns and sales incentives. Revenues from prepaid subscription fees, such as within the G&NS segment, are
recognized ratably over the subscription term.
F-22