Sony 2015 Annual Report Download - page 185

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
by anticipated intercompany transactions and intercompany accounts receivable and payable denominated in
foreign currencies. The majority of written foreign currency option contracts are a part of range forward contract
arrangements and expire in the same month with the corresponding purchased foreign currency option contracts.
Sony also entered into foreign exchange forward contracts during the fiscal year ended March 31, 2016
which effectively fixed the cash flows from foreign currency denominated payables. Accordingly, these
derivatives have been designated as cash flow hedges.
Foreign exchange forward contracts and foreign currency option contracts that do not qualify as hedges are
marked-to-market with changes in value recognized in other income and expenses.
Foreign exchange forward contracts, foreign currency option contracts and currency swap agreements held
by certain subsidiaries in the Financial Services segment are marked-to-market with changes in value recognized
in financial service revenue.
Interest rate swap agreements (including interest rate and currency swap agreements)
Interest rate swap agreements are utilized primarily to lower funding costs, to diversify sources of funding
and to limit Sony’s exposure associated with underlying debt instruments and available-for-sale debt securities
resulting from adverse fluctuations in interest rates, foreign currency exchange rates and changes in fair
values. Interest rate swap agreements entered into in the Financial Services segment are used for reducing the
risk arising from the changes in the fair value of fixed rate available-for-sale debt securities. These derivatives
are considered to be a hedge against changes in the fair value of available-for-sale debt securities in the Financial
Services segment. Accordingly, these derivatives have been designated as fair value hedges.
Sony also had certain interest rate swap agreements during the fiscal year ended March 31, 2014 for the
purpose of reducing the risk arising from the changes in anticipated cash flows of variable rate debt and foreign
currency denominated debt. These interest rate swap agreements, which effectively swapped foreign currency
denominated variable rate debt for functional currency denominated fixed rate debt, were considered a hedge
against changes in the anticipated cash flows of Sony’s foreign denominated variable rate obligations.
Accordingly, these derivatives were designated as cash flow hedges.
Certain subsidiaries in the Financial Services segment have interest rate swap agreements as part of their
ALM, which are marked-to-market with changes in value recognized in financial service revenue.
Any other interest rate swap agreements that do not qualify as hedges, which are used for reducing the risk
arising from changes of variable rate debt, are marked-to-market with changes in value recognized in other
income and expenses.
Other agreements
Certain subsidiaries in the Financial Services segment have equity future contracts, other currency contracts
and hybrid financial instruments as part of their ALM, which are marked-to-market with changes in value
recognized in financial services revenue. The hybrid financial instruments, disclosed in Note 7 as debt securities,
contained embedded derivatives that are not required to be bifurcated because the entire instruments are carried
at fair value.
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