BW20030602002104 20030602T151555Z UTC
( BW)(SONY-CORP.)(SON) Final Results - Part 2
Business Editors
UK REGULATORY NEWS
TOKYO--(BUSINESS WIRE)--June 2, 2003--
Dollars
in
millions
Yen in millions (Note 3)
------------------------- ---------
2002 2003 2003
------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings (Note 12) YEN113,277 YEN124,360 $1,036
Current portion of long-term debt (Notes 9, 12 and 14) 240,786 34,385 287
Notes and accounts payable, trade (Note 6) 767,625 697,385 5,812
Accounts payable, other and accrued expenses (Notes 5 and 15). 869,533 864,188 7,202
Accrued income and other taxes 105,470 109,199 910
Deposits from customers in the banking business (Note 13) 106,472 248,721 2,073
Other (Notes 21 and 24) 355,333 356,810 2,972
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Total current liabilities 2,558,496 2,435,048 20,292
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Long-term liabilities:
Long-term debt (Notes 9, 12 and 14) 838,617 807,439 6,729
Accrued pension and severance costs (Note 15) 299,089 496,174 4,135
Deferred income taxes (Note 21) 159,573 159,079 1,326
Future insurance policy benefits and other (Note 11) 1,680,418 1,914,410 15,953
Other 255,824 255,478 2,129
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3,233,521 3,632,580 30,272
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Minority interest in consolidated subsidiaries 23,368 22,022 184
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Stockholders' equity (Note 16):
Subsidiary tracking stock, no par value -
2002-Authorized 100,000,000 shares, outstanding 3,072,000 shares 3,917
2003-Authorized 100,000,000 shares, outstanding 3,072,000 shares 3,917 33
Common stock, no par value -
2002-Authorized 3,500,000,000 shares, outstanding 919,744,355 shares 472,189
2003-Authorized 3,500,000,000 shares, outstanding 922,385,176 shares 472,361 3,936
Additional paid-in capital 968,223 984,196 8,202
Retained earnings 1,209,262 1,301,740 10,848
Accumulated other comprehensive income -
Unrealized gains on securities (Note 8) 22,997 17,658 147
Unrealized losses on derivative instruments (Note 14) (711) (4,793) (40)
Minimum pension liability adjustment (Note 15) (72,040) (182,676) (1,522)
Foreign currency translation adjustments (225,839) (302,167) (2,519)
------------------------------------------------------------------------------------------------- ----------------------
(275,593) (471,978) (3,934)
Treasury stock, at cost
(2002 - 1,239,304 shares, 2003 - 1,573,396 shares) (7,588) (9,341) (78)
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2,370,410 2,280,895 19,007
------------------------------------------------------------------------------------------------- ----------------------
Commitments and contingent liabilities (Notes 9 and 24)
YEN8,185,795 YEN8,370,545 $69,755
------------------------------------------------------------------------------------------------- ----------------------
The accompanying notes are an integral part of these statements.
Consolidated Statements of Income
Sony Corporation and Consolidated Subsidiaries - Year ended March 31
Dollars
in
millions
Yen in millions (Note 3)
------------------------------------------------
2001 2002 2003 2003
------------------------------------------------------------------------------------ ------------ ----------------------
Sales and operating revenue:
Net sales (Note 6) YEN6,829,003 YEN7,058,755 YEN6,916,042 $57,634
Financial service revenue 447,147 483,313 512,641 4,272
Other operating revenue 38,674 36,190 44,950 374
------------------------------------------------------------------------------------ ------------ ----------------------
7,314,824 7,578,258 7,473,633 62,280
------------------------------------------------------------------------------------ ------------ ----------------------
Costs and expenses:
Cost of sales (Notes 18 and 19) 5,046,694 5,239,592 4,979,421 41,495
Selling, general and administrative (Notes 17, 18 and 19) 1,613,069 1,742,856 1,819,468 15,162
Financial service expenses 429,715 461,179 489,304 4,078
------------------------------------------------------------------------------------ ------------ ----------------------
7,089,478 7,443,627 7,288,193 60,735
------------------------------------------------------------------------------------ ------------ ----------------------
Operating income 225,346 134,631 185,440 1,545
------------------------------------------------------------------------------------ ------------ ----------------------
Other income:
Interest and dividends (Note 6) 18,541 16,021 14,441 120
Royalty income 29,302 33,512 32,375 270
Foreign exchange gain, net - - 1,928 16
Gain on sales of securities investments and other, net 41,708 1,398 72,552 605
Gain on issuances of stock by equity investees (Note 20) 18,030 503 - -
Other 60,073 44,894 36,232 302
------------------------------------------------------------------------------------ ------------ ----------------------
167,654 96,328 157,528 1,313
------------------------------------------------------------------------------------ ------------ ----------------------
Other expenses:
Interest 43,015 36,436 27,314 228
Loss on devaluation of securities investments 4,230 18,458 23,198 193
Foreign exchange loss, net 15,660 31,736 - -
Other 64,227 51,554 44,835 373
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127,132 138,184 95,347 794
------------------------------------------------------------------------------------ ------------ ----------------------
Income before income taxes 265,868 92,775 247,621 2,064
------------------------------------------------------------------------------------ ------------ ----------------------
Income taxes (Note 21):
Current 121,113 114,930 178,847 1,491
Deferred (5,579) (49,719) (98,016) (817)
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115,534 65,211 80,831 674
------------------------------------------------------------------------------------ ------------ ----------------------
Income before minority interest, equity in net
losses of affiliated companies and cumulative
effect of accounting changes 150,334 27,564 166,790 1,390
Minority interest in income (loss)
of consolidated subsidiaries (15,348) (16,240) 6,581 55
Equity in net losses of affiliated companies (Note 6) 44,455 34,472 44,690 372
------------------------------------------------------------------------------------ ------------ ----------------------
Income before cumulative effect
of accounting changes 121,227 9,332 115,519 963
------------------------------------------------------------------------------------ ------------ ----------------------
Cumulative effect of accounting changes
(2001: Including YEN491 million income tax expense
2002: Net of income taxes of YEN2,975 million) (Note 2) (104,473) 5,978 - -
------------------------------------------------------------------------------------ ------------ ----------------------
Net income YEN16,754 YEN15,310 YEN115,519 $963
------------------------------------------------------------------------------------ ------------ ----------------------
(Continued on following page.)
Dollars
Yen (Note 3)
--------------------------------- -------
2001 2002 2003 2003
------------------------------------------------------------------------------------------------------------------------
Per share data (Note 22):
Common stock
Income before cumulative effect of accounting changes
- Basic YEN132.64 YEN10.21 YEN125.74 $1.05
- Diluted 124.36 10.18 118.21 0.99
Cumulative effect of accounting changes
- Basic (114.31) 6.51 - -
- Diluted (105.08) 6.49 - -
Net income
- Basic 18.33 16.72 125.74 1.05
- Diluted 19.28 16.67 118.21 0.99
Cash dividends 25.00 25.00 25.00 0.21
Subsidiary tracking stock (Note 16)
Net income (loss)
- Basic - (15.87) (41.98) (0.35)
Cash dividends - - - -
----------------------------------------------------------------------------------------- ----------- ------------------
The accompanying notes are an integral part of these statements.
Consolidated Statements of Cash Flows
Sony Corporation and Consolidated Subsidiaries - Year ended March 31
Dollars
in
millions
Yen in millions (Note 3)
-------------------------------- ---------
2001 2002 2003 2003
------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income YEN16,754 YEN15,310 YEN115,519 $963
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization, including amortization of deferred
insurance acquisition costs 348,268 354,135 351,925 2,933
Amortization of film costs 244,649 242,614 312,054 2,600
Accrual for pension and severance costs, less payments 21,759 14,995 37,858 316
Loss on sale, disposal or impairment of long-lived assets, net. 24,304 49,862 39,941 333
Gain on securities contribution to employee
retirement benefit trust (Note 8) (11,120) - - -
Gain on sales of securities investments and other, net (41,708) (1,398) (72,552) (605)
Gain on issuances of stock by equity investees (Note 20) (18,030) (503) - -
Deferred income taxes (5,579) (49,719) (98,016) (817)
Equity in net losses of affiliated companies, net of dividends 47,219 37,537 46,692 389
Cumulative effect of accounting changes (Note 2) 104,473 (5,978) - -
Changes in assets and liabilities:
(Increase) decrease in notes and accounts receivable, trade. (177,484) 111,301 174,679 1,456
(Increase) decrease in inventories (103,085) 290,872 36,039 300
Increase in film costs
(after adjustment for cumulative effect of an accounting change) (269,004) (236,072) (317,953) (2,650)
Increase (decrease) in notes and accounts payable, trade 95,213 (172,626) (58,384) (486)
Increase (decrease) in accrued income and other taxes 38,749 (39,589) 14,637 122
Increase in future insurance policy benefits and other 241,140 314,405 233,992 1,950
Increase in deferred insurance acquisition costs (68,927) (71,522) (66,091) (551)
Increase in marketable securities held in the insurance
business for trading purpose (20,000) (55,661) - -
(Increase) decrease in other current assets (17,031) 5,543 29,095 242
Increase (decrease) in other current liabilities 88,224 (19,418) 26,205 218
Other 5,983 (46,492) 48,148 402
---------------------------------------------------------------------------------------- ---------- ---------- ---------
Net cash provided by operating activities YEN544,767 YEN737,596 YEN853,788 $7,115
---------------------------------------------------------------------------------------- ---------- ---------- ---------
(Continued on following page.)
Dollars
in
millions
Yen in millions (Note 3)
-------------------------------------- ---------
2001 2002 2003 2003
------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for purchases of fixed assets YEN(468,019) YEN(388,514) YEN(275,285) $(2,294)
Proceeds from sales of fixed assets 26,704 37,434 25,711 214
Payments for investments and advances by financial service business (329,319) (705,796) (1,026,361) (8,553)
Payments for investments and advances
(other than financial service business) (136,818) (90,544) (109,987) (917)
Proceeds from sales of securities investments, maturities of marketable
securities and collections of advances by financial service business 93,226 345,112 542,539 4,521
Proceeds from sales of securities investments, maturities of marketable
securities and collections of advances (other than financial service
business) 94,264 33,969 135,834 1,132
Decrease in time deposits 914 1,222 1,124 10
------------------------------------------------------------------------------------ ------------ ------------ ---------
Net cash used in investing activities (719,048) (767,117) (706,425) (5,887)
------------------------------------------------------------------------------------ ------------ ------------ ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 195,118 228,999 12,323 103
Payments of long-term debt (143,258) (171,739) (238,144) (1,985)
Increase (decrease) in short-term borrowings 106,245 (78,104) (7,970) (66)
Increase in deposits from customers in the banking business (Note 13) - 106,472 142,023 1,184
Proceeds from issuance of subsidiary tracking stock (Note 16) - 9,529 - -
Dividends paid (22,774) (22,951) (22,871) (191)
Other (889) 12,834 21,505 179
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Net cash provided by (used in) financing activities 134,442 85,040 (93,134) (776)
------------------------------------------------------------------------------------ ------------ ------------ ---------
Effect of exchange rate changes on cash and cash equivalents 21,020 21,036 (24,971) (208)
------------------------------------------------------------------------------------ ------------ ------------ ---------
Net increase (decrease) in cash and cash equivalents (18,819) 76,555 29,258 244
Cash and cash equivalents at beginning of year 626,064 607,245 683,800 5,698
------------------------------------------------------------------------------------ ------------ ------------ ---------
Cash and cash equivalents at end of year YEN607,245 YEN683,800 YEN713,058 $5,942
------------------------------------------------------------------------------------ ------------ ------------ ---------
Supplemental data:
Cash paid during the year for -
Income taxes YEN93,629 YEN148,154 YEN171,531 $1,429
Interest 47,806 35,371 22,216 185
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Non-cash investing and financing activities -
Contribution of assets into an affiliated company - YEN10,545 - -
------------------------------------------------------------------------------------ ------------ ------------ ---------
The accompanying notes are an integral part of these statements.
Consolidated Statements of Changes in Stockholders' Equity
Sony Corporation and Consolidated Subsidiaries - Year ended March 31
Yen in millions
---------------------------------------------------------------------------
Accumulated
Additional other Treasury
Common paid-in Retained comprehensive stock, at
stock capital earnings income cost Total
------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 YEN451,550 YEN940,716 YEN1,223,761 YEN(425,316) YEN (7,805) YEN2,182,906
Exercise of stock purchase warrants 297 297 594
Conversion of convertible bonds 20,151 20,143 40,294
Stock issued under exchange offerings 4 1,069 1,073
Comprehensive income:
Net income 16,754 16,754
Other comprehensive income, net of tax (Note
16) -
Unrealized gains on securities:
Unrealized holding gains or losses
arising during the period (7,490) (7,490)
Less: Reclassification adjustment for
gains or losses included in net income (9,909) (9,909)
Minimum pension liability adjustment (46,134) (46,134)
Foreign currency translation adjustments 160,282 160,282
------------
Total comprehensive income 113,503
------------
Stock issue costs, net of tax (466) (466)
Dividends declared (22,939) (22,939)
Purchase of treasury stock (2,123) (2,123)
Reissuance of treasury stock 176 2,435 2,611
------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2001 YEN472,002 YEN962,401 YEN1,217,110 YEN(328,567) YEN(7,493) YEN2,315,453
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(Continued on following page.)
Yen in millions
-----------------------------------------------------------------------------------
Accumulated
Subsidiary Additional other Treasury
tracking Common paid-in Retained comprehensive stock, at
stock stock capital earnings income cost Total
------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2001 - YEN472,002 YEN962,401 YEN1,217,110 YEN(328,567) YEN(7,493) YEN2,315,453
Exercise of stock purchase warrants 26 26 52
Conversion of convertible bonds 161 162 323
Issuance of subsidiary tracking stock
(Note 16) YEN3,917 5,612 9,529
Comprehensive income:
Net income 15,310 15,310
Other comprehensive income, net of
tax (Note 16) -
Unrealized gains on securities:
Unrealized holding gains or
losses arising during the period (20,243) (20,243)
Less: Reclassification adjustment
for gains or losses included in
net income (1,276) (1,276)
Unrealized losses on derivative
instruments:
Cumulative effect of an accounting
change 1,089 1,089
Unrealized holding gains or losses
arising during the period 2,437 2,437
Less: Reclassification adjustment
for gains or losses included in
net income (4,237) (4,237)
Minimum pension liability adjustment (22,228) (22,228)
Foreign currency translation
adjustments 97,432 97,432
------------------------------------- ------------
Total comprehensive income 68,284
------------
Stock issue costs, net of tax (166) (166)
Dividends declared (22,992) (22,992)
Purchase of treasury stock (468) (468)
Reissuance of treasury stock 22 373 395
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Balance at March 31, 2002 YEN3,917 YEN472,189 YEN968,223 YEN1,209,262 YEN(275,593) YEN(7,588) YEN2,370,410
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(Continued on following page.)
Yen in millions
------------------------------------------------------------------------------------
Accumulated
Subsidiary Additional other Treasury
tracking Common paid-in Retained comprehensive stock, at
stock stock capital earnings income cost Total
------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2002 YEN3,917 YEN472,189 YEN968,223 YEN1,209,262 YEN(275,593) YEN(7,588) YEN2,370,410
Exercise of stock purchase warrants
Conversion of convertible bonds 172 172 344
Stock issued under exchange offering
(Note 16). 15,791 15,791
Comprehensive income:
Net income 115,519 115,519
Other comprehensive income, net of
tax (Note 16) -
Unrealized gains on securities:
Unrealized holding gains or
losses arising during the
period (9,627) (9,627)
Less: Reclassification
adjustment for gains or losses
included in net income 4,288 4,288
Unrealized losses on derivative
instruments:
Unrealized holding gains or
losses arising during the
period (4,477) (4,477)
Less: Reclassification
adjustment for gains or losses
included in net income 395 395
Minimum pension liability
adjustment (110,636) (110,636)
Foreign currency translation
adjustments :
Translation adjustments arising
during the period (83,993) (83,993)
Less: Reclassification adjustment
for losses included in net
income 7,665 7,665
Total comprehensive income (80,866)
------------
Stock issue costs, net of tax (19) (19)
Dividends declared (23,022) (23,022)
Purchase of treasury stock (1,817) (1,817)
Reissuance of treasury stock 10 64 74
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Balance at March 31, 2003 YEN3,917 YEN472,361 YEN984,196 YEN1,301,740 YEN(471,978) YEN(9,341) YEN2,280,895
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(Continued on following page.)
Dollars in millions (Note 3)
----------------------------------------------------------------------
Accumulated Treasury
Subsidiary Additional other stock,
tracking Common paid-in Retained comprehensive at
stock stock capital earnings income cost Total
------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2002 $33 $3,935 $8,069 $10,077 $(2,297) $(63) $19,754
Exercise of stock purchase warrants
Conversion of convertible bonds 1 1 2
Stock issued under exchange offering (Note 16). 132 132
Comprehensive income:
Net income 963 963
Other comprehensive income, net of tax
(Note 16) - Unrealized gains on securities:
Unrealized holding gains or losses arising
during the period (80) (80)
Less: Reclassification adjustment for gains or
losses included in net income 35 35
Unrealized losses on derivative instruments:
Unrealized holding gains or losses arising
during the period (37) (37)
Less: Reclassification adjustment for gains or
losses included in net income 3 3
Minimum pension liability adjustment (922) (922)
Foreign currency translation adjustments :
Translation adjustments arising during the
period (700) (700)
Less: Reclassification adjustment for losses
included in net income 64 64
Total comprehensive income (674)
--------
Stock issue costs, net of tax (0) (0)
Dividends declared (192) (192)
Purchase of treasury stock (15) (15)
Reissuance of treasury stock 0 0 0
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Balance at March 31, 2003 $33 $3,936 $8,202 $10,848 $(3,934) $(78) $19,007
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The accompanying notes are an integral part of these statements.
Index to Notes to Consolidated Financial Statements
Sony Corporation and Consolidated Subsidiaries
Notes to Consolidated Financial Statements Page
----------------------------------------------------------------------------------------------
1. Nature of operations 33
2. Summary of significant accounting policies 33
3. U.S. dollar amounts 49
4. Inventories 49
5. Film costs 50
6. Investments in and transactions with affiliated companies 50
7. Accounts receivable securitization program 53
8. Marketable securities and securities investments and other 54
9. Leased assets 55
10. Goodwill and intangible assets 57
11. Insurance-related accounts 61
12. Short-term borrowings and long-term debt 62
13. Deposits from customers in the banking business 65
14. Financial instruments 65
15. Pension and severance plans 69
16. Stockholders' equity 73
17. Stock-based compensation plans 80
18. Restructuring charges and asset impairments 83
19. Research and development costs, advertising costs and shipping and handling costs 88
20. Gain on issuances of stock by equity investees 88
21. Income taxes 89
22. Reconciliation of the differences between basic and diluted net income
per share ("EPS") 93
23. Variable Interest Entities 95
24. Commitments and contingent liabilities 97
25. Business segment information 99
Notes to Consolidated Financial Statements
Sony Corporation and Consolidated Subsidiaries
1. Nature of operations
Sony Corporation and consolidated subsidiaries (hereinafter
collectively referred to as "Sony") are engaged in the development,
design, manufacture, and sale of various kinds of electronic
equipment, instruments, and devices for consumer and industrial
markets. Sony also develops, produces, manufactures, and markets
home-use game consoles and software. Sony's principal manufacturing
facilities are located in Japan, the United States of America, Europe,
and Asia. Its electronic products are marketed throughout the world
and game products are marketed mainly in Japan, the United States of
America and Europe by sales subsidiaries and unaffiliated local
distributors as well as direct sales via the Internet. Sony is engaged
in the development, production, manufacture, and distribution of
recorded music, in all commercial formats and musical genres. Sony is
also engaged in the development, production, manufacture, marketing,
distribution and broadcasting of image-based software, including film,
video and television. Further, Sony is engaged in various financial
service businesses including insurance operations through a Japanese
life insurance subsidiary and non-life insurance subsidiaries, banking
operations through a Japanese internet-based banking subsidiary and
leasing and credit financing operations in Japan. In addition to the
above, Sony is engaged in Internet-related businesses and an
advertising agency business in Japan.
2. Summary of significant accounting policies
Sony Corporation and its subsidiaries in Japan maintain their records
and prepare their financial statements in accordance with accounting
principles generally accepted in Japan while its foreign subsidiaries
maintain their records and prepare their financial statements in
conformity with accounting principles generally accepted in the
countries of their domiciles. Certain adjustments and
reclassifications have been incorporated in the accompanying
consolidated financial statements to conform with accounting
principles generally accepted in the United States of America ("U.S.
GAAP"). These adjustments were not recorded in the statutory books of
account.
(1) Accounting changes:
Impairment or disposal of long-lived assets -
On April 1, 2002, Sony adopted Statement of Financial Accounting
Standards ("FAS") No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets". FAS No. 144 supersedes FAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and the accounting and reporting provisions of
Accounting Principles Board Opinion ("APB") No. 30 "Reporting the
results of Operations - Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" for the disposal of segments of a business.
FAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. FAS No. 144 establishes a
single accounting model for long-lived assets to be disposed of by
sale and modifies the accounting and disclosure rules for discontinued
operations. The adoption of the provision of FAS No. 144 did not have
a material impact on Sony's results of operations and financial
position for the year ended March 31, 2003.
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections -
In April 2002, the Financial Accounting Standards Board ("FASB")
issued FAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections". This
statement rescinds certain authoritative pronouncements and amends,
clarifies or describes the applicability of others, effective for
fiscal years beginning or transactions occurring after May 15, 2002,
with early adoption encouraged. Sony elected early adoption of this
statement retroactive to April 1, 2002. The adoption of this statement
did not have an impact on Sony's results of operations and financial
position.
Accounting for Costs Associated with Exit or Disposal Activities -
In June 2002, the FASB issued FAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which nullifies Emerging
Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
activity (including Certain Costs Incurred in a Restructuring)". FAS
No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002. FAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities. FAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized and
measured initially at fair value only when the liability is incurred,
rather than the date of an entity's commitment to an exit plan. Sony
adopted FAS No. 146 on January 1, 2003. The adoption of this statement
did not have a material effect on Sony's results of operations and
financial position.
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others -
In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, an
interpretation of FASB Statements No. 5, 57, and 107 and rescission of
FASB Interpretation No. 34". The interpretation elaborates on the
existing disclosure requirements for most guarantees, including loan
guarantees such as standby letters of credit. It also clarifies that
at the time a company issues a guarantee, the company must recognize
an initial liability for the fair value of the obligations it assumes
under the guarantee. The provisions related to recognizing a liability
at inception of the guarantee for the fair value of the guarantor's
obligations do not apply to product warranties or to guarantees
accounted for as derivatives. The initial recognition and initial
measurement provisions of FIN No. 45 are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. The
initial recognition and initial measurement provisions of FIN No. 45
did not have a material effect on Sony's results of operations and
financial position as at and for the year ended March 31, 2003. The
disclosure provisions, which increase the required disclosure related
to guarantees, have been adopted in the consolidated financial
statements.
Accounting for Stock-Based Compensation - Transition and Disclosure -
In December 2002, the FASB issued FAS No. 148, ''Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of
FASB Statement No. 123''. FAS No. 148 amends FAS No. 123, ''Accounting
for Stock-Based Compensation'', to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. FAS No. 148 also
requires that disclosures of the pro forma effect of using the fair
value method of accounting for stock-based employee compensation be
displayed more prominently and in a tabular format. For Sony, the
transition and annual disclosure requirements of FAS No. 148 are
effective for the year ended March 31, 2003. Sony has accounted for
its employee stock-based compensation in accordance with APB No. 25,
"Accounting for Stock Issued to Employees" and, therefore, the
adoption of the provisions of FAS No. 148 did not have an impact on
Sony's results of operations and financial position. Sony has adopted
the disclosure-only requirements in accordance with FAS No. 148.
Consolidation of Variable Interest Entities -
In January 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities - an Interpretation of ARB No. 51". This
interpretation addresses consolidation by a primary beneficiary of a
variable interest entity ("VIE"). FIN No. 46 is effective immediately
for all new VIEs created or acquired after January 31, 2003. For VIEs
created or acquired prior to February 1, 2003, the provisions of FIN
No. 46 become effective for Sony during the second quarter of the year
ending March 31, 2004. For VIEs acquired prior to February 1, 2003,
any difference between the net amount added to the balance sheet and
the amount of any previously recognized interest in the VIE will be
recognized as a cumulative effect of an accounting change.
Sony continues to evaluate the impact of FIN No. 46 on Sony's results
of operations and financial position. However, Sony has identified
potential VIEs created prior to February 1, 2003, which may be
consolidated upon the adoption of FIN No. 46. If these potential VIEs
are consolidated, Sony would record a charge of approximately YEN1,800
million ($15 million) as a cumulative effect of accounting change and
an increase in assets and liabilities of approximately YEN97,342
million ($811 million). See Note 23 for further discussion on the VIEs
that are used by Sony. Sony did not enter into any new arrangements
with VIEs during the period February 1, 2003 through March 31, 2003.
Derivative instruments and hedging activities -
On April 1, 2001, Sony adopted FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended by FAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an Amendment of FASB statement No. 133". FAS No. 133, as
amended, establishes accounting and reporting standards for derivative
instruments. Specifically, FAS No. 133 requires an entity to recognize
all derivatives, including certain derivative instruments embedded in
other contracts, as either assets or liabilities in the balance sheet
and to measure those instruments at fair value. Additionally, the fair
value adjustments will affect either stockholders' equity or net
income depending on whether the derivative instruments qualifies as a
hedge for accounting purposes and, if so, the nature of the hedging
activity.
As a result of the adoption of the new standards, Sony's operating
income, income before income taxes and net income for the year ended
March 31, 2002 decreased by YEN3,007 million, YEN3,441 million and
YEN2,167 million, respectively. Additionally, on April 1, 2001, Sony
recorded a one-time non-cash after-tax unrealized gain of YEN1,089
million in accumulated other comprehensive income in the consolidated
balance sheet, as well as an after-tax gain of YEN5,978 million in the
cumulative effect of accounting changes in the consolidated statement
of income. This after-tax gain was primarily attributable to fair
value adjustments of convertible rights embedded in convertible bonds
held by Sony's life insurance subsidiary as available-for-sale debt
securities.
Goodwill and other intangible assets -
In July 2001, Sony elected early adoption, retroactive to April 1,
2001, of FAS No. 142, "Goodwill and Other Intangible Assets" which
superseded APB No. 17, "Intangible Assets". FAS No. 142 addresses the
accounting for acquired goodwill and other intangible assets. Under
FAS No. 142, goodwill and certain other intangible assets that are
determined to have an indefinite life are no longer amortized, but
rather are tested for impairment on an annual basis and between annual
tests if an event occurs or circumstances change that would more
likely than not reduce the fair value below its carrying amount. Prior
to the adoption of FAS No. 142, goodwill recognized in acquisitions
accounted for as purchases was amortized on a straight-line basis
principally over a 20 or 40-year period. As a result of the adoption
of FAS No. 142, Sony's operating income and income before income taxes
for the year ended March 31, 2002 increased by YEN20,114 million and
income before cumulative effect of accounting changes as well as net
income for the year ended March 31, 2002 increased by YEN18,932
million.
Accounting for consideration paid to a reseller -
In the fourth quarter of the year ended March 31, 2002, Sony adopted
retroactive to April 1, 2001 EITF Issue No. 00-25, "Vendor Income
Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products", which was later codified along with other similar
issues into EITF Issue No. 01-09, "Accounting for Consideration Given
by a Vendor to a Customer or Reseller of the Vendor's Products". EITF
Issue No. 01-09 clarifies the income statement classification of costs
incurred by a vendor in connection with the reseller's purchase or
promotion of the vendor's products, resulting in certain cooperative
advertising and product placement costs previously classified as
selling, general and administrative expenses to be reflected as a
reduction of revenues earned from that activity. The accounting change
did not have any effect on operating income or a material effect on
net sales and selling, general and administrative expenses for the
year ended March 31, 2002. Sony has not reclassified the financial
statements for the year ended March 31, 2001 due to immateriality.
Film accounting -
In June 2000, Sony elected early adoption of Statement of Position
("SOP") 00-2, "Accounting by Producers or Distributors of Films",
issued by the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants. SOP 00-2 established new
film accounting standards, including changes in revenue recognition
and accounting for advertising, development and overhead costs.
Specifically, SOP 00-2 requires all exploitation costs, such as
advertising expenses and marketing costs, for theatrical and
television product to be expensed as incurred. This compares to Sony's
previous policy of first capitalizing and then expensing advertising
costs for theatrical and television product over the related revenue
streams. In addition, SOP 00-2 requires development costs for
abandoned projects and certain indirect overhead costs to be charged
directly to expense, instead of those costs being capitalized to film
costs, which was required under the previous accounting standards. SOP
00-2 also requires all film costs to be classified in the balance
sheet as non-current assets. The provisions of SOP 00-2 in other
areas, such as revenue recognition, generally are consistent with
Sony's existing accounting policies.
Sony adopted SOP 00-2 retroactive to April 1, 2000. As a result,
Sony's net income for the year ended March 31, 2001 included a
one-time, non-cash charge with no tax effect of YEN101,653 million,
primarily to reduce the carrying value of its film inventory. The
charge has been reflected as a cumulative effect of an accounting
change in the accompanying consolidated statements of income.
Revenue recognition -
In the fourth quarter of the year ended March 31, 2001, Sony adopted
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements", issued by the United States of America
Securities and Exchange Commission retroactive to April 1, 2000. As a
result, Sony changed its method of accounting for revenues from
electronics, game and music sales. Revenues from electronics, game and
music sales are recognized upon delivery which is considered to have
occurred when the customer has taken title to the product and the risk
and rewards of ownership have been substantively transferred.
Following SAB No. 101, revenues are recognized when the product is
delivered to the customer delivery site. Previously Sony followed the
guidance of FASB Statement of Financial Accounting Concept ("SFAC")
No. 5 "Recognition and Measurement in Financial Statements of Business
Enterprises" in which revenues were recognized when Sony had
substantially completed all of its obligations pursuant to the terms
of the sales contract. Under the guidance of SFAC No. 5, Sony viewed
its obligation under the sales contract to be substantially completed
when products were shipped and recognized revenues at that time. In
accordance with SAB No. 101, Sony has recorded a one-time non-cash
charge of YEN2,821 million, including YEN491 million income tax
expense, which represents the net impact of sales that were previously
recognized in the year ended March 31, 2000. These sales were
subsequently recognized in the year ended March 31, 2001 due to the
adoption of SAB No. 101. The charge has been reflected as a cumulative
effect of an accounting change in the accompanying consolidated
statements of income. The accounting change did not have a material
effect on Sony's consolidated statements of income for the year ended
March 31, 2001.
(2) Significant accounting policies:
Basis of consolidation and accounting for investments in affiliated
companies -
The consolidated financial statements include the accounts of Sony
Corporation and those of its majority-owned subsidiary companies. All
intercompany transactions and accounts are eliminated. Investments in
which Sony has significant influence or ownership of 20% or more but
less than or equal to 50% are accounted for under the equity method.
In addition, all investments in limited partnerships and general
partnerships are also accounted for under the equity method. Under the
equity method, investments are stated at cost plus/minus Sony's equity
in undistributed earnings or losses. Consolidated net income includes
Sony's equity in current earnings or losses of such companies, after
elimination of unrealized intercompany profits. If the value of an
investment has declined and is judged to be other than temporary, the
investment is written down to its fair value.
On occasion, a consolidated subsidiary or affiliated company accounted
for by the equity method may issue its shares to third parties as
either a public or private offering or upon conversion of convertible
debt to common stock at amounts per share in excess of or less than
Sony's average per share carrying value. With respect to such
transactions, where the sale of such shares is not part of a broader
corporate reorganization and the reacquisition of such shares is not
contemplated at the time of issuance, the resulting gains or losses
arising from the change in interest are recorded in income for the
year the change in interest transaction occurs. If the sale of such
shares is part of a broader corporate reorganization, the
reacquisition of such shares is contemplated at the time of issuance
or realization of such gain is not reasonably assured (i.e., the
entity is newly formed, non-operating, a research and development or
start-up/development stage entity, or where the entity's ability to
continue in existence is in question), the transaction is accounted
for as a capital transaction.
The excess of the cost over the underlying net equity of investments
in consolidated subsidiaries and affiliated companies accounted for on
an equity basis is allocated to identifiable assets and liabilities
based on fair values at the date of acquisition. The unassigned
residual value of the excess of the cost over the underlying net
equity is recognized as goodwill.
Use of estimates -
The preparation of the consolidated financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Translation of foreign currencies -
All asset and liability accounts of foreign subsidiaries and
affiliates are translated into Japanese yen at appropriate year-end
current rates and all income and expense accounts are translated at
rates that approximate those rates prevailing at the time of the
transactions. The resulting translation adjustments are accumulated as
a component of accumulated other comprehensive income.
Foreign currency receivables and payables are translated at
appropriate year-end current rates and the resulting translation gains
or losses are taken into income currently.
Cash and cash equivalents -
Cash and cash equivalents include all highly liquid investments,
generally with original maturities of three months or less, that are
readily convertible to known amounts of cash and are so near maturity
that they present insignificant risk of changes in value because of
changes in interest rates.
Marketable debt and equity securities -
Debt securities and equity securities designated as
available-for-sale, whose fair values are readily determinable, are
carried at fair value with unrealized gains or losses included as a
component of accumulated other comprehensive income, net of applicable
taxes. Debt and equity securities classified as trading securities are
carried at fair value with unrealized gains or losses included in
income. Debt securities that are expected to be held-to-maturity are
carried at amortized cost. Individual securities classified as either
available-for-sale or held-to-maturity are reduced to net realizable
value by a charge to income for other than temporary declines in fair
value. Realized gains and losses are determined on the average cost
method and are reflected in income.
Equity securities in non-public companies -
Equity securities in non-public companies are carried at cost as fair
value is not readily determinable. If the value of a non-public equity
investment is estimated to have declined and such decline is judged to
be other than temporary, Sony recognizes the impairment of the
investment and the carrying value is reduced to its fair value.
Determination of impairment is based on the consideration of such
factors as operating results, business plans and estimated future cash
flows. Fair value is determined through the use of such methodologies
as discounted cash flows, valuation of recent financings and
comparable valuations of similar companies.
Inventories -
Inventories in electronics, game and music as well as non-film
inventories for pictures are valued at cost, not in excess of market,
cost being determined on the "average cost" basis except for the cost
of finished products carried by certain subsidiary companies which is
determined on the "first-in, first-out" basis.
Film costs -
Film costs related to theatrical and television product (which
includes direct production costs, production overhead and acquisition
costs) are stated at the lower of unamortized cost or estimated fair
value and classified as non-current assets. Film costs are amortized,
and the estimated liabilities for residuals and participations are
accrued, for an individual product based on the proportion that
current period actual revenues bear to the estimated remaining total
lifetime revenues. These estimates are reviewed on a periodic basis.
Property, plant and equipment and depreciation -
Property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is primarily computed on the
declining-balance method for Sony Corporation and Japanese
subsidiaries, except for certain semiconductor manufacturing
facilities whose depreciation is computed on the straight-line method,
and on the straight-line method for foreign subsidiaries at rates
based on estimated useful lives of the assets, principally, ranging
from 15 years up to 50 years for buildings and from 2 years up to 10
years for machinery and equipment. Significant renewals and additions
are capitalized at cost. Maintenance and repairs, and minor renewals
and betterments are charged to income as incurred.
Goodwill and other intangible assets -
As a result of the adoption of FAS No. 142, goodwill and certain other
intangible assets that are determined to have an indefinite life are
not amortized and are tested for impairment on an annual basis and
between annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value below its carrying
amount. Fair value for those assets is generally determined using a
discounted cash flow analysis. Prior to the adoption of FAS No. 142,
in accordance with APB No. 17, goodwill was amortized on a
straight-line basis principally over a 20 or 40 year period and
indefinite-lived intangible assets were also amortized on a
straight-line basis principally over a 20 year period.
Intangible assets that are determined not to have an indefinite life
mainly consist of artist contracts, music catalogs, acquired patent
rights and software to be sold, leased or otherwise marketed. Artist
contracts and music catalogs are amortized on a straight-line basis
principally over a period of up to 40 years. Acquired patent rights
and software to be sold, leased or otherwise marketed are amortized on
a straight-line basis over 3 to 10 years.
Accounting for computer software to be sold -
Sony accounts for software development costs in accordance with FAS
No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed".
In the Electronics business, costs related to establishing the
technological feasibility of a software product are expensed as
incurred as a part of research and development in cost of sales. Costs
that are incurred to produce the finished product after technological
feasibility is established are capitalized and amortized over the
estimated economic life of the product, which is generally three
years. Sony performs periodic reviews to ensure that unamortized
program costs remain recoverable from future revenue.
In the Game business, technological feasibility of the underlying
software is reached shortly before the products are released to
manufacturing. Costs incurred after technological feasibility is
established are not material, and accordingly, Sony expenses software
development costs for the Game business as incurred as a part of
research and development in cost of sales.
Deferred insurance acquisition costs -
Costs that vary with and are primarily related to acquiring new
insurance policies are deferred as long as they are recoverable. The
deferred insurance acquisition costs are being amortized mainly over
the premium-paying period of the related insurance policies using
assumptions consistent with those used in computing policy reserves.
Product warranty -
Sony provides for the estimated cost of product warranties at the time
revenue is recognized by either product category group or individual
product. The product warranty is calculated based upon product sales,
estimated probability of failure and estimated cost per claim. The
variables used in the calculation of the provision are reviewed on a
periodic basis.
Certain subsidiaries in the Electronics business offer extended
warranty programs. The consideration received through extended
warranty service is deferred and amortized on a straight-line basis
over the term of the extended warranty.
Future insurance policy benefits -
Future insurance policy benefits are computed based on actuarial
assumptions.
Accounting for the impairment of long-lived assets -
Sony periodically reviews the carrying value of its long-lived assets
held and used, other than goodwill and intangible assets with
indefinite lives, and assets to be disposed of, whenever events or
changes in circumstances indicated that the carrying amount may not be
recoverable. Long-lived assets to be held and used are reviewed for
impairment by comparing the carrying value of the assets with their
estimated future undiscounted cash flows. If it is determined that an
impairment loss has occurred, the loss would be recognized during the
period. The impairment loss would be calculated as the difference
between asset carrying value and the present value of estimated net
cash flows or comparable market values, giving consideration to recent
operating performance. Long-lived assets that are to be disposed of
other than by sale are considered held and used until they are
disposed of. Long-lived assets that are to be disposed of by sale are
reported at the lower of their carrying value or fair value less cost
to sell. Reductions in carrying value are recognized in the period in
which the long-lived assets are classified as held for sale.
Derivative financial instruments -
All derivatives, including certain derivative financial instruments
embedded in other contracts, are recognized as either assets or
liabilities in the balance sheet at fair value. Changes in the fair
value of derivative financial instruments are either recognized
periodically in income or stockholders' equity (as a component of
accumulated other comprehensive income), depending on whether the
derivative financial instrument qualifies as a hedge and the
derivative is being used to hedge changes in fair value or cash flows.
In accordance with FAS No. 133, the derivative financial instruments
held by Sony are classified and accounted as 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 in current period earnings.
Derivatives not designated as hedges
Changes in the fair value of derivatives that are not designated as
hedges under FAS No. 133 are recognized in current period earnings.
Sony formally documents all hedging relationships between the
derivatives designated as hedges and 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 balance
sheet or to the specific forecasted transaction. 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.
Stock-based compensation -
Sony follows the disclosure-only provisions of FAS No. 148 and has
elected to apply APB No. 25 in accounting for its stock-based
compensation plans. In accordance with APB No. 25, stock-based
compensation cost is recognized in income based on the excess, if any,
of the quoted market price of the common stock or subsidiary tracking
stock of Sony Corporation at the grant date of the award or other
measurement date over the stated exercise price of the award. As the
exercise prices for Sony's stock-based compensation plans are
generally determined based on the prevailing market price shortly
before the date of grant, the compensation expense for these plans is
not significant. For awards that generate compensation expense as
defined under APB No. 25, Sony calculates the amount of compensation
expense and recognizes the expense over the vesting period of the
award.
The following table reflects the net effect on net income and net
income per share allocated to the common stock if Sony had applied the
fair value recognition provisions of FAS No. 123 to stock-based
compensation. See Note 17 for detailed assumptions.
Year
ended
March
Year ended March 31 31,
-------------------------------
2001 2002 2003 2003
---------- --------- ---------- ---------
Dollars
in
Yen in millions millions
------------------------------- ---------
Income before cumulative effect of accounting changes
allocated to the common stock:
As reported YEN121,227 YEN9,381 YEN115,648 $964
Deduct: Total stock-based
compensation expense
determined under fair value
based method, net of related
tax effects (2,703) (5,395) (7,008) (59)
---------- --------- ---------- ---------
Pro forma YEN118,524 YEN3,986 YEN108,640 $905
========== ========= ========== =========
Net income
allocated to the common stock:
As reported YEN16,754 YEN15,359 YEN115,648 $964
Deduct: Total stock-based
compensation expense
determined under fair value
based method, net of related
tax effects (2,703) (5,395) (7,008) (59)
---------- --------- ---------- ---------
Pro forma YEN14,051 YEN9,964 YEN108,640 $905
========== ========= ========== =========
Yen Dollars
------------------------------- ---------
Income before cumulative effect of accounting changes
allocated to the common stock:
-Basic EPS:
As reported YEN132.64 YEN10.21 YEN125.74 $1.05
Pro forma 129.69 4.34 118.12 0.98
-Diluted EPS:
As reported YEN124.36 YEN10.18 YEN118.21 $0.99
Pro forma 121.64 4.33 111.20 0.93
Net income
allocated to the common stock:
-Basic EPS:
As reported YEN18.33 YEN16.72 YEN125.74 $1.05
Pro forma 15.37 10.85 118.12 0.98
-Diluted EPS:
As reported YEN19.28 YEN16.67 YEN118.21 $0.99
Pro forma 16.56 10.82 111.20 0.93
Net income and net income per share allocated to the subsidiary
tracking stock for the years ended March 31, 2002 and 2003 would not
be significantly impacted.
Free distribution of common stock -
On occasion, Sony Corporation may make a free distribution of common
stock which is accounted for either by a transfer from additional
paid-in capital to the common stock account or with no entry if free
shares are distributed from the portion of previously issued shares in
the common stock account.
Under the Japanese Commercial Code, a stock dividend can be effected
by an appropriation of retained earnings to the common stock account
by resolution of the general meeting of shareholders, followed by a
free share distribution with respect to the amount appropriated by
resolution of the Board of Directors' meeting.
Free distribution of common stock is recorded in the consolidated
financial statements only when it becomes effective, except for the
calculation and presentation of per share amounts.
Stock issue costs -
Stock issue costs are directly charged to retained earnings, net of
tax, in the accompanying consolidated financial statements as the
Japanese Commercial Code prohibits charging such stock issue costs to
capital accounts which is the prevailing practice in the United States
of America.
Revenue recognition -
In accordance with SAB No. 101, revenues from electronics, game and
music sales are recognized upon delivery which is considered to have
occurred when the customer has taken title to the product and the risk
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 from the theatrical exhibition of motion pictures are
recognized as the customer exhibits the film. Revenues from the
licensing of feature films and television programming are recorded
when the material is available for telecast by the licensee and when
any restrictions regarding the exhibition or exploitation of the
product lapse. Revenues from the sale of home videocassettes and DVDs
are recognized upon availability of sale to the public.
Life insurance policies that the life insurance subsidiary writes,
most of which are categorized as long-duration contracts, mainly
consist of whole life, term life and accident and health insurance
contracts. Premiums from these policies are reported as revenue when
due from policyholders.
Property and casualty insurance policies that the non-life insurance
subsidiary writes are primarily automotive insurance contracts which
are categorized as short-duration contracts. Premiums from these
policies are reported as revenue over the period of the contract in
proportion to the amount of insurance protection provided.
Accounting for consideration paid to a reseller -
In accordance with EITF Issue No. 01-09, cash consideration paid to a
reseller including payments for buydowns, slotting fees and
cooperative advertising programs, is accounted for as a reduction of
revenue unless Sony receives an identifiable benefit (goods or
services) in exchange for the consideration, can reasonably estimate
the fair value of this benefit and receives documentation from the
reseller to support the amounts spent. Any payments meeting these
criteria are treated as selling, general and administrative expense.
For the years ended March 31, 2002 and 2003, reseller payments,
primarily for cooperative advertising programs, included in selling,
general and administrative expense totaled YEN 28,683 million and YEN
29,135 million ($ 243 million), respectively.
Cost of sales -
Costs classified as cost of sales relate to the producing and
manufacturing of products and include such items as material cost,
subcontractor cost, depreciation of fixed assets, personnel expenses,
research and development costs, and amortization of film cost related
to theatrical and television products.
Research and development costs -
Research and development costs are expensed as incurred.
Selling, general and administrative -
Costs classified as selling expense relate to the promoting and
selling of products and include such items as advertising, promotion,
shipping, and warranty expenses.
General and administrative expenses include operating items such as
officer's salaries, personnel expenses, depreciation of fixed assets,
office rental for sales, marketing and administrative divisions, a
provision for doubtful accounts and amortization of intangible assets.
Financial service expenses -
Financial service expenses include provision for policy reserves and
amortization of deferred insurance acquisition cost, and all other
operating costs such as personnel expenses, depreciation of fixed
assets, office rental of subsidiaries in the Financial Services
segment.
Advertising costs -
Advertising costs are expensed when the advertisement or commercial
appears in the selected media, except for advertising costs for
acquiring new insurance policies which are deferred and amortized as
part of insurance acquisition costs.
Shipping and handling costs -
The majority of shipping and handling, warehousing and internal
transfer costs for finished goods are included in selling, general and
administrative expenses. An exception to this is in the Pictures
business where such costs are charged to cost of sales as it is an
integral part of producing and distributing the film under SOP 00-2.
All other costs related to Sony's distribution network are included in
cost of sales, including inbound freight charges, purchasing and
receiving costs, inspection costs and warehousing costs for raw
materials and in-process inventory. In addition, amounts paid by
customers for shipping and handling costs are included in net sales.
Income taxes -
The provision for income taxes is computed based on the pretax
income included in the consolidated statements of income. The asset
and liability approach is used to recognize deferred tax assets and
liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets
and liabilities.
Net income per share -
Sony calculates and presents per share data separately for Sony's
common stock and for the subsidiary tracking stock, based on FAS No.
128, "Earnings per Share". The holders of the subsidiary tracking
stock have the right to participate in earnings, together with common
stock holders. Accordingly, Sony calculates per share data by the
"two-class" method based on FAS No. 128. Under this method, basic net
income per share ("EPS") for each class of stock is calculated based
on the earnings allocated to each class of stock for the applicable
period, divided by the weighted-average number of outstanding shares
in each class during the applicable period.
The earnings allocated to the subsidiary tracking stock are determined
based on the subsidiary tracking stock holders' economic interest in
the targeted subsidiary's earnings available for dividends. As defined
by Sony Corporation's articles of incorporation, the amount
distributable to the subsidiary tracking stock holders is based on the
declared dividends of the targeted subsidiary, which only may be
declared from the amounts available for dividends of the targeted
subsidiary. The targeted subsidiary's earnings available for dividends
are, as stipulated by the Japanese Commercial Code, not including
those of the targeted subsidiary's subsidiaries. If the targeted
subsidiary has accumulated losses, a change in accumulated losses is
also allocated to the subsidiary tracking stock. The subsidiary
tracking stock holders' economic interest is calculated as the number
of the subsidiary tracking stock outstanding (3,072,000 shares)
divided by the number of the targeted subsidiary's common stock
outstanding (235,520 shares), subject to multiplying by the Standard
Ratio (tracking stock : subsidiary's common stock = 1 : 100, as
defined in the articles of incorporation). The earnings allocated to
the common stock are calculated by subtracting the earnings allocated
to the subsidiary tracking stock from Sony's net income for the
period.
The computation of diluted net income per common stock reflects the
maximum possible dilution from conversion, exercise, or contingent
issuance of securities.
There are no potentially dilutive securities for net income per
subsidiary tracking stock, as tracking stock shares outstanding are
increased upon potential subsidiary tracking stocks' being exercised,
which results in a proportionate increase in earnings allocated to the
subsidiary tracking stock. However, they could have a dilutive effect
on net income per common stock, as earnings allocated to the common
stock would be decreased.
EPS for all periods is appropriately adjusted for any free
distributions of common stock which have been completed.
(3) Recent Pronouncements
Accounting for Asset Retirement Obligations -
In June 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations". This statement addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs.
This statement shall be effective for fiscal years beginning after
June 15, 2002. The adoption of FAS No. 143 is not expected to have a
material impact on Sony's results of operations and financial
position.
Multiple Element Arrangements -
In November 2002, the FASB issued EITF Issue No. 00-21, "Accounting
for Revenue Arrangements with Multiple Deliverables". EITF Issue No.
00-21 provides guidance on when and how to account for arrangements
that involve the delivery or performance of multiple products,
services and/or rights to use assets. The provisions of EITF Issue No.
00-21 will apply to revenue arrangements entered into in fiscal
periods beginning after June 15, 2003. Sony is currently evaluating
the impact of adopting this guidance.
Derivative Instruments and Hedging Activities -
In April 2003, the FASB issued FAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". This statement
amends and clarifies financial accounting and reporting for derivative
instruments, including derivative instruments embedded in other
contracts and for hedging activities under FAS No. 133. Sony is
currently evaluating the impact of adopting this new pronouncement.
Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity -
In May 2003, the FASB issued FAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity". FAS No. 150 establishes standards for how certain financial
instruments with characteristics of both liabilities and equity shall
be classified and measured. This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning
after June 15, 2003. Sony is currently evaluating the impact of
adopting this statement.
(4) Reclassifications:
Certain reclassifications of the financial statements for the years
ended March 31, 2001 and 2002 have been made to conform to the
presentation for the year ended March 31, 2003.
3. U.S. dollar amounts
U.S. dollar amounts presented in the financial statements are included
solely for the convenience of the reader. These translations should
not be construed as representations that the yen amounts actually
represent, or have been or could be converted into U.S. dollars. As
the amounts shown in U.S. dollars are for convenience only, the rate
of YEN120 = U.S.$1, the approximate current rate at March 31, 2003,
has been used for the purpose of presentation of the U.S. dollar
amounts in the accompanying consolidated financial statements.
4. Inventories
Inventories comprise the following:
Dollars in
Yen in millions millions
--------------------- ----------
March 31 March 31,
---------------------
2002 2003 2003
---------- ---------- ----------
Finished products YEN429,484 YEN398,180 $3,318
Work in process 108,143 110,008 917
Raw materials, purchased components and supplies 135,810 117,539 979
---------- ---------- ----------
YEN673,437 YEN625,727 $5,214
========== ========== ==========
5. Film costs
Film costs comprise the following:
Dollars in
Yen in millions millions
--------------------- ------------
March 31 March 31,
---------------------
2002 2003 2003
---------- ---------- ------------
Theatrical:
Released (including acquired film libraries) YEN134,997 YEN142,168 $1,185
Completed not released 9,465 13,356 111
In production and development 115,458 91,696 764
Television licensing:
Released (including acquired film libraries) 48,623 40,417 337
In production and development 4,511 141 1
---------- ---------- ------------
YEN313,054 YEN287,778 $2,398
========== ========== ============
Sony estimates that approximately 88% of unamortized costs of released
films (excluding amounts allocated to acquired film libraries) at
March 31, 2003 will be amortized within the next three years.
Approximately YEN89,520 million ($746 million) of released film costs
are expected to be amortized during the next twelve months. As of
March 31, 2003, unamortized acquired film libraries of approximately
YEN20,591 million ($172million) remain to be amortized on a
straight-line basis over an average of the remaining life of 7 years.
Approximately YEN92,204 million ($768 million) of accrued
participation liabilities included in accounts payable, other and
accrued expenses are expected to be paid during the next twelve
months.
6. Investments in and transactions with affiliated companies
Sony accounts for its investments in affiliated companies over which
Sony has significant influence or ownership of 20% or more but less
than or equal to 50% under the equity method. In addition, all
investments in limited partnerships and general partnerships are also
accounted for under the equity method. Such investments include but
are not limited to Sony's interest in Sony Ericsson Mobile
Communications, AB (50%), American Video Glass Company (50%), ST
Liquid Crystal Display Corporation (50%), BE-ST Bellevuestrasse
Development GmbH & Co. First Real Estate KG, Berlin (50%), InterTrust
Technologies Corporation (49.5%) and Crosswave Communications Inc.
(23.9%).
Summarized combined financial information that is based on information
provided by equity investees is shown below:
(MORE TO FOLLOW)
Short Name: Sony Corp.
Category Code: FR
Sequence Number: 00005356
Time of Receipt (offset from UTC): 20030602T155753+0100
--30--KO/uk* AC/uk MH/uk
CONTACT: Sony Corporation
KEYWORD: UNITED KINGDOM JAPAN INTERNATIONAL EUROPE ASIA PACFIC
INDUSTRY KEYWORD: COMPUTERS/ELECTRONICS
ELECTRONIC GAMES/MULTIMEDIA HARDWARE
SOURCE: Sony Corp.
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